|The Need For Modern E-Commerce Chargeback Management Solutions|
The Need For Modern E-Commerce Chargeback Management Solutions
E-commerce transactions disputed by buyers are called ‘chargebacks.’ The retailers or online vendors have to bear the brunt of these chargebacks. They affect their revenue as they have to refund the amount requested by the buyer. Although vendors have ways to file a counter-dispute, in most cases, vendors have to absorb the refund charges.
The chargeback system was designed to safeguard consumers who’ve made erroneous orders or have been compromised by hackers. However, this option has been misused by many scammers, leading to a rise in chargeback fraud.
Vendors receive ‘chargeback reason codes’ that clarify the reasons behind chargeback requests. While these codes help vendors realize what went wrong in specific transactions, they still have to refund the revenue. This data isn’t enough for vendors to create impactful solutions and prevent future chargeback requests. Plus, filing counter-disputes also involves additional processing fees.
Online merchants may end up spending 23% of their operational budget on chargeback management. Merchants need to do more to avoid these operating expenses. Paying 23% of their annual operating budgets every year may render them bankrupt.
Here are the most common types of chargebacks vendors have to deal with -
· Merchant Error – An an insignificant error like not providing a detailed bill can instigate a customer to report a chargeback error.
· Customer Error – Customers may order a product by mistake.
· Fraud – Many cardholders are deliberately engaging in unauthorized transactions to file chargebacks. For instance, they may order a product from another user’s card. After receiving the product, the cardholder may report a chargeback. If the bills provided by the vendor are not detailed, the merchant may lose the dispute and be forced to compensate the customer. These types of frauds are called ‘friendly frauds.’ Cardholders use ambiguities in the chargeback system to take advantage of the merchant.
· Canceled transactions – Often, authorization or processing errors may lead to chargebacks. The vendor, the issuing bank, or the payment processor may be at fault for these cancellations. Either way, vendors have to engage in counter-disputes whenever there’s a canceled transaction. Even if the vendor wins the dispute, a lot of time, money, and effort are unnecessarily spent on these processes.
Similarly, when customers decide to return products, they count as chargebacks. The more chargebacks a vendor has to deal with, the worse his chargeback per transaction ratio will get. Banks and third-party payment providers earmark vendors with poor chargeback per transaction ratios. Vendors who sell on third-party digital e-commerce platforms may even lose their accounts.
· Fulfillment Errors – Issues with shipping, unsafe packaging or unprofessional deliveries can result in customers filing for chargebacks.
The Need for Modern Strategies
Merchants must invest in comprehensive, chargeback prevention strategies. In the past, a combination of basic pre-sale authentication processes and post-sale confirmation steps were efficient enough. To reduce pointless revenue loss, costs, and penalizations, merchants need to address the root causes behind chargebacks.
Friendly fraud and invalid disputes are two of the leading causes of chargebacks. Online vendors spend way too much time fighting false consumer claims and invalid disputes. For instance, ‘cardholder doesn’t recognize’ is a common argument put forward by unsatisfied customers. According to them, they either didn’t authorize a transaction or did not remember authorizing a transaction.
Thankfully, the win rate for vendors fighting these “cardholder doesn’t recognize” disputes was 96.2%. Two leading issuing banks have now retired the “cardholder doesn’t recognize” chargeback reason code. Hence, these chargebacks can no longer be disputed based on that reason code.
Merchants are assuming more liability for disputes than ever. Without installing more efficient ways of preventing friendly fraud, detecting scammers, and anticipating chargebacks, their businesses cannot survive.
Tools and Processes to Fight Chargebacks
Merchants need to anticipate chargebacks. Preemptive actions will not only prevent disputes but also improve customer satisfaction levels. Some easy ways to adopt these preemptive measures include -
· Organizing the Processes - Clean and easily accessible records regarding all transactions will vendors fight the main risk-friendly fraud. If vendors respond quickly to disputed orders and meet the strict time requirements of chargeback dispute processes, they can avoid losing disputes. These vendors will get a reputation for being difficult for scammers and fraudsters.
· Gain Knowledge about Dispute Rights – Vendors must know everything required of them during chargeback dispute processes.
· Investing in Software Tools – Leading vendors are using software tools to achieve perfect eCommerce chargeback management solution. Vendors can work with the software tools developers to manage, monitor, and modify these automatized chargeback management systems. These systems are flexible, adjustable, and offer vendors total control over all chargeback processes.
Teaming up with dedicated chargeback experts can also help vendors in the long run. These specialists leverage their experience in chargeback management to save the vendor a lot of money and time. These third-party chargeback management experts create tools that preemptively identify fraudulent charges, reject them, and guarantee secure checkout for all legitimate customers.