All chargebacks fall into 4 categories:
Fraud: Used when a customer does not recognize the transaction and believe their card has been compromised and contacts their financial institution to report the transaction
Authorization: Used when proper authorizations weren’t completed prior to settling the transaction
Processing Error: Used when a customer experiences incorrect transaction processing
Consumer Disputes: Used when a customer has an issue with the product or service they purchased and contacts their financial institution to report the transaction
Each of these categories has their own subcategories called chargeback reason codes and need specific evidence to support the claim that the transaction is legitimate. Below are the most common chargeback reason codes:
Fraud
Service Not Provided/Merchandise Not Received
Canceled Recurring Transactions
Not as Described or Defective Merchandise
Refund Not Processed
Duplicate Transaction
Chargeback Fees & Processing
When a customer files a chargeback on a transaction, the transaction total is taken from the merchant and a temporary credit is given to the customer. The merchant is also responsible for a chargeback fee for each chargeback received. This fee helps cover the costs of processing the chargeback, investigating the dispute, and any other related expenses.
When a chargeback is received, there will be an adjustment made to your deposit the following business day. In this adjustment, you will see the total adjustment equal the amount of the chargeback, plus any chargeback fees.
When a chargeback is won and funds are returned from the cardholder’s bank, those funds are returned in the next deposit.
Disputing Chargebacks
After receiving a chargeback, you will want to gather as much compelling evidence as you can that is related to the chargeback reason code. Compelling evidence can be made up of customer communication history, customer billing history, or product/service explanations. Make sure you have clear screenshots and explanations for everything you are providing. To learn more about what evidence you need, click here. Once you’ve gathered all of your evidence, send this to support@designmanager.com with the chargeback transaction information.
How to prevent chargebacks
Receiving a chargeback is never ideal. While never completely avoidable, you can take a few steps to lower your chargeback risk. The list below highlights some best practices in avoiding chargebacks.
Having a clear refund policy - Have a plan in place for when a refund is requested by your customer. Make sure that policy is clear on your website or in your terms and conditions. Merchants who have no refund policy, tend to have higher chargeback rates.
Making it easy to contact you - If a customer is able to settle the issue with you, they are much less likely to charge back a transaction. In fact, issuing banks always request that customers attempt to settle disputes with merchants before filing a chargeback.
Stepping up your customer service game - Having a great customer service experience can reduce chargebacks. When you have a team who is responsive, accurate, and empathetic, your customer will feel like they were able to get their issue resolved.
Upfront product descriptions - Represent products and services accurately by offering detailed descriptions and clear pictures. This helps customers have confidence in what they are purchasing and avoid a chargeback because the customer feels deceived.
Avoiding manually keying credit card information - Everyone makes mistakes and keying in the wrong information could result in a chargeback. It’s always best to avoid manually keying in cards when it’s possible.
Having clear billing descriptors - If a customer doesn't recognize your business on their credit card statement, you increase the likelihood of them filing a chargeback.
Implement a fraud prevention tool - Having a fraud prevention tool in place helps identify fraudulent transactions before they take place. These tools can alert you to suspicious patterns, such as unusual purchase behavior or stolen card details giving you time to act before a chargeback happens.
Cancel Recurring Transactions - If a customer files a chargeback, even for a non-subscription related reason code, make sure to cancel any future recurring transactions. Additional transactions can lead to additional chargebacks.
Chargebacks can be expensive and time-consuming. By focusing on prevention, you can reduce financial losses, protect your reputation, and maintain a positive relationship with your customers.