How To Understand And Reduce Refunds Or Chargebacks

To reduce chargeback cases and refunds an e-Commerce merchant must know and understand how and why chargebacks occur. Chargeback cases might just be an e-Commerce merchants worst nightmare as they lead to: a) irreversibly high expenses in chargeback fees and product loss, b) bad credit card history, and c) TMF – terminated merchant file status. Let’s look closer at the setbacks of chargebacks.

• Every eCommerce merchant account service provider has a fee in their pricelist called the ‘Chargeback Fee’. This fee is charged when a merchant’s bank has been charged initially by the cardholder’s [the customer] bank. Chargeback fees may be as high as $40.00 and many chargeback cases can considerably drain any e-Commerce merchant’s initial deposit and bank account. Moreover, as chargebacks mainly occur due to credit card fraud, an e-Commerce merchant will have to make a return of the payment, which was initially unauthorized, pay the chargeback fee to the bank, and never get the sent out merchandise back. This indeed may lead to serious financial damages.
• An e-Commerce merchant’s credit card history is as important as the amount of sales that are conducted. The competition in the rendering of merchant account services, providers always make sure that their clients [applying e-Commerce merchants] had never had any credit card problems by checking their credit card processing history with other merchant banks of merchant service providers. With bad credit card history many merchant banks/service providers will turn e-Commerce merchants down. No credit card history is also hard to come by when trying to get a local/regular e-Commerce merchant account. Chargebacks are always recorded and displayed later in an e-Commerce merchant’s credit card history – and that makes a bad processing history.
• TMF stands for terminated merchant file e-Commerce merchant status and is usually given to merchants who have in one way or another abused the service of e-Commerce merchant accounts. A TMF will block any opportunity to get a merchant account, domestic and, sometimes, international, too. Too many chargebacks, way over the merchant bank set limits, are the cause of the TMF status for e-Commerce merchants. And that is the worst thing one may get. High-risk e-Commerce merchant account offer substantial protection against TMF status.

As you can see, chargebacks may cause so much inconvenience, many troubles, leading to financial loss, time loss and bad reputation. When a chargeback occurs the arbitration process may be helpful if an e-Commerce merchant is sure that the chargeback was not his fault. But this takes up much time and nerves, especially if the credit card processing bank is located in another country or on another continent. Handling chargebacks is tough, so it is strongly recommended to prevent chargebacks in the first place.

To prevent chargeback cases and returns it is important to understand the reasons for their occurrence. Most chargeback cases are the result of a fraudulent transaction – commonly known as a fraud. A fraud chargeback happens when the cardholder receives his/her monthly statement and contacts the issuing bank regarding contradictory credit card transactions for merchandise/services they had neither requested nor received. The e-Commerce merchant is chargedback, having to pay out the whole sum of the unauthorized transaction (and the chargeback fee). Fraud occurs when a cardholder’s credit card had been either lost or stolen and not reported in time. The possession of the credit card by a third-party gives it the opportunity to use the card to order anything online until the card becomes blocked/void. In other cases the card itself is possessed by the cardholder, but the card information and the cardholder’s personal details had been gained illegally (spoofing, carding, hacking, identity theft). This information is enough to shop online using the CNP [card not present] transaction technology at webstores with automated merchant services (i.e. shopping cart scripts).

To fight back fraud, preventing online chargeback cases, read our articles on fraud prevention and minimization in our Articles section. Online credit card fraud with CNP transaction services has grown by 350% since 2005, so it is extremely important to protect yourself and your e-Commerce business.

Other significant reasons and possible solutions for chargeback/return cases are:

a) Transaction processed several times. This occurs when an e-Commerce merchant’s shopping cart script sends a transaction request more than once on the same order. The order doubles or triples and the cardholder is be charged incorrectly. This is generally the cardholder’s fault (clicking the ‘Submit Form’ button many times, Web-Browser error issues, etc.) but it is the e-Commerce merchant who will have to make a return and get chargebacked. To avoid this it is up to the e-Commerce merchant to check whether a double order is an error or not by contacting the cardholder [purchaser] before processing.

b) Customer received no services/merchandise. This occurs commonly due to shipping problems, client detail entry errors, and possible shopping cart script bugs or processing gateway malfunction. To correct this problem it is advised to use shipping methods which require the cardholder to sign a document upon delivery. Making sure that the shopping cart script, especially one which is not supported by the e-Commerce merchant account service provider, is updated and patched against any known bugs and errors. It is also recommended to contact the cardholder to verify the correctness of the his/her shipping details.

c) Transaction processed for incorrect amount. Again this may be caused by errors in the shopping cart system or sub-system. E-Commerce merchants must always check that the price of a product or service registered in the shopping cart script database corresponds to the price displayed on the website catalogue.

d) Transaction not processed within Visa or MasterCard time frames. Server ping-timeouts and, again, e-Commerce shopping cart script errors may considerably slow down the transaction process. Visa and MasterCard will cancel the transaction if it is not processed within their set time frames. This is improbable though with a reliable merchant service provider (MSP), dedicated server provider, and shopping cart script.

e) Other product/service related issues may be: product or service different from what was promised, cardholder dissatisfied with quality of services or product. Making sure that all product/service descriptions are up-to-date, precise and relevant will prevent this type of chargeback/return case.

f) Other credit card and transaction issues: card not used within valid expiration date, transaction was not canceled successfully, incorrect transaction date, cardholder was denied the ability to return an item, e-Commerce merchant consciously participated in a fraudulent credit card transaction, e-Commerce merchant modified transaction amount without authorization, and others.

As you can see there are many significant causes for chargebacks and returns. One of the factors that cause problems when an e-Commerce merchant tries to dispute the chargeback is the time factor. Credit card holders receive their statements at the end of each month. That is why it is almost impossible to trace and prevent a fraudulent transaction in time. E-Commerce merchants will then have to dig through all their records in order to find some relevant information which takes up much time, too.

A few tips to reduce chargebacks and returns in general are:

• Using a high-risk e-Commerce merchant account will protect you, as an e-Commerce merchant from getting a TMF status.
• Disabling automated transaction without prior verification by the e-Commerce merchant is one of the most significant fraud (main cause for chargebacks and returns) prevention techniques. Checking every order and verifying it by contacting the customer can to some degree guarantee a fully authorized payment transaction.
• Gaining knowledge on online credit card processing by reading articles, news and forums dedicated to e-Commerce.
• Using auxiliary security systems by Visa and MasterCard.
• Getting serviced by a good e-Commerce merchant provider ensures stability, security and simply great credit card processing functionality. Support is also vital, as decent merchant service providers will help e-Commerce merchants fight back fraudulent transaction cases, returns and chargeback cases.
• Integrating a new version of a non-free, advanced shopping cart script with as much settings and control as possible will prevent bugs and errors during transaction and payment gateway communication, ensuring flawless and stable and protected functionality.

t vital to have a great credit card processing service provider that is ready to aid its e-Commerce merchants in dealing with chargebacks and any other problems. Choose your e-Commerce merchant account with care paying special attention to post-sales services and guarantees.