So, you’ve attracted users to your site, blown them off their feet with sensational product pages and eased them through the checkout process? The order confirmation pops up and you dispatch their order within the hour. After a couple of hours, the funds arrive in your merchant account.
Everyone is happy.
Well, everyone is happy until your bank janks the money out your account and sends it back to your customer in what’s called a chargeback.
Yep, chargebacks are a nightmare for eCommerce businesses, costing them tens of millions of dollars every single year.
What is a chargeback?
Before we jump into our three tried and tested chargeback defences, here’s a quick primer on what chargebacks are.
A chargeback is a disputed transaction between a customer and a business.
If the bank decides the chargeback is genuine, it reverses the transaction and returns the funds to the customer’s account.
If the bank decides the chargeback isn’t genuine, the merchant gets to keep the funds.
How Can I Limit Chargebacks?
Unfortunately, not all chargebacks used to reverse genuine card fraud.
Sometimes the customer forgets they purchased something and assumes it’s fraud, sometimes they simply don’t want to pay and so on.
Protecting your business from chargebacks doesn’t have to be a huge ordeal. Simple things done well can deliver a real benefit to your business and significantly reduce one of the more annoying parts of online business.
In this article, I’m going to look at three tried and tested tactics you can implement to reduce the number of chargebacks you receive.
Build frictionless return and refund systems
A brick-and-mortar store’s refund process is relatively straightforward. If someone wants to return something, they come back to the store and find your customer service desk.
Unfortunately, it’s a little trickier for online businesses.
Just think about it. Your business might be based in New York and your customer could be in Hawaii. That poses huge logistical challenges.
Who organises the return? Who pays for the shipping? When should you release the refunded money to your customer? Should you refund the original shipping? What happens is your delivery company loses the package?
Even the very best returns processes are still a pain for both the merchant and the seller.
Okay, that’s well and good but how is this related to chargebacks?
Modern customers like convenience. Amazon Prime, drive-through fast food, on-demand streaming. Nowadays, people expect stuff to be easy.
If your returns process isn’t easy, they’ll look for another option. Unfortunately, more and more frustrated customers are turning to chargebacks as a low-effort alternative to chargebacks.
I strongly recommend you start thinking of your refund process and chargebacks as being in direct competition. Now, ask yourself whether your returns process is really attractive enough to tempt your customers away from the chargeback route.
Okay, enough scary talk. Here are some tips for building a great returns process.
Fundamentally, it’s all about minimising friction. Think about including pre-paid, pre-addressed return envelopes included with orders, employing dedicated returns staff, publishing a super concise return policy helpful and consistent communication.
Whatever you decide to do, always try and put yourself in your customer’s shoes and image how they feel. For example, if you make them pay for return postage, how will that make them feel?
Once your customers know that you offer stress-free refunds, they are significantly less likely to resort of chargebacks.
Use a name that people recognise
There’s a company called 37signals based in the US. While they’ve got a couple of products, they are best known for a project management tool called Basecamp.
Basecamp got so popular that customers started to refer to the whole company as Basecamp.
That made things very confusing when it came to billing. A customer would receive their statement and see this charge from 37signals LLC and immediately assume that someone had stolen their credit card.
Back in 2009, 37signals’ chargebacks were shooting up and they needed a solution. So they started experimenting with their statement descriptor.
After a bit of trial and error, they switched their name to a URL — 37signals-charge.com — so customers saw 37signals-charge.com and not 37signals LLC on their statement.
If a confused customer typed that URL in, they were taken to a website that explained that the 37signals was the company behind Basecamp and that’s what they were being billed for.
Chargebacks dropped by 30% and (I’m guessing) there were lots of high-fives!
The takeaway tip is pretty clear. Choose a statement name that your customers will immediately recognise!
Think about the last time you received poor customer service. I’m talking really really poor customer service. Belligerent, stand-offish, negligent customer service.
The type of service where bored, underpaid and disinterested support staff trot out the same canned responses before transferring you to a different but equally inept department.
Can you feel your frustration boiling? Can you feel your eyes rolling? Can you feel the urge to slam the phone down?
If customers are presented with poor service and cannot achieve what they’re trying to achieve, can you really blame them for resorting to alternative processes like chargebacks?
The weird thing is, good customer service isn’t even that difficult.
Yes, it’s hard work but you don’t have to completely overhaul your business or bring in thousands of highly-skilled employees.
The biggest change you can make is to improve your communication.
Make it regular, make it quick and make it consistent. Respond to emails, phone calls and social media posts as quickly as you can.
Provide genuine answers where possible. Don’t wait for your customers to make contact. Reach out proactively and solve their problems.
You’ll be amazed how compliant a customer will be if they think you’re working for them rather than against them.
Average Chargeback Rates
So there you have it, three simple tactics you can use to decrease the number of chargebacks you receive.
Below are some industry benchmarks from merchant service company Ingenico. Find your industry and see how you compare to the averages.
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How does your business perform against the industry standards? Let us know in the comments.
About the Author
Stephen Hart was the CFO of Worldpay before leaving to found the UK’s first merchant services comparison site Cardswitcher.