chargeback management best practices

9 Best Practices for Chargeback Management

You might think that fraud prevention tools will take care of chargeback fees, and they may to a certain extent. But they are only a component of a proactive chargeback management strategy. Chargebacks are taking an ever-increasing bite out of merchants’ bottom lines because the threats are coming from several sources: criminal fraud, friendly fraud, and your own mistakes and oversights. Over time, these threats can make or break your sustainability.

What are your sources and causes of chargebacks, and what can you do about them? Read on to find out nine best practices that can help minimize your chargebacks, whether they are due to criminal data breaches, so-called friendly fraud committed by your customers, or errors and mistakes on your part.  


1. Identify the Source of Your Chargebacks
Do most of your chargebacks come from consumers who complete an online transaction and then request a chargeback without a valid reason? This is first-party fraud, or “friendly fraud,” and it is an increasing problem for ecommerce merchants. Are you experiencing third-party fraud where bad actors make fraudulent purchases using a legitimate user’s information? Are you following best practices when validating user identities, matching chargebacks to sales, keeping accurate records, and identifying codes on receipts? 

Without a clear picture of what threats you face, it will not be easy to develop a targeted strategy to prevent chargebacks. Find out where your weaknesses are and go from there.  


2. Look for Red Flags for Third-Party Fraud
You can address third-party fraud by using anti-fraud tools that look for red flags. Sophisticated tools are geolocation, device fingerprinting, velocity checks, address verification, fraud blacklists, CVV verification, and 3-D Secure Technology. Typically, merchants will rely on SaaS or a third-party or a payments solutions provider to install software that identifies fraudulent activity, but there are other, less sophisticated tools that merchants might not be using and should. 


3. Verify Suspicious Transactions
An even more rudimentary best practice is to watch out for suspicious transactions. If a shipping address differs from the billing address, this should be checked. It could be a legitimate case where a gift is being sent to a friend or family member, but it could also be a case of a stolen card being used to make a purchase. Other warning signs are a customer who requests urgent, overnight delivery (a case of hit and run by a fraudster), or uncharacteristic orders such as buying one of everything (a sign the buyer intends to resell the items).


4. Check Your Procedures and Policies
You could be partly responsible for many of your chargeback fees. For example, you might not be accurately matching chargebacks to sales. Your records may not be well maintained, and your identifying codes on receipts could be confusing. 

Also, how clear are your security procedures to your customers? You should state on your website what steps you take to protect the safety of your customers’ data and their transactions. Just knowing that a merchant is on top of payments and returns will discourage chargebacks as a result of criminals and customers who may attempt “friendly fraud.”

For more on friendly fraud, read, “Customers Are Now the Biggest Fraud Threat to Merchants—How to Fight Friendly Fraud


5. Be Generous with Returns and Exchanges
Make it convenient and appealing for customers to return items. Merchants often discourage returns, which is a bad idea. A chargeback is likely to cost twice as much as the original transaction amount, so a generous return policy is financially the wisest choice. Also, the hassle of chargebacks often results in negative word of mouth, and if a customer found a product unsatisfactory, negative word of mouth is even more likely. Display clear return and exchange policies on your website to avoid frustrated customers.


6. Check How Seamless Your Payment and Returns Processes Really Are
Friendly fraud can be drastically reduced if merchants pay more attention to the needs of their customers. For example, by making returns effortless for the customer, they can avoid disputes occurring in the first place. By opening up dialogue with customers through chatbots, in-person agents, or through emails, a customer is more likely to contact the merchant first before contacting the bank to initiate a chargeback. Test your system by shopping at your own store to experience what the consumer experiences. Remember, the goal is to make buying and returning as friction-free as possible. 

For more on customer-focused innovations, read “From Chatbots to Chargebacks: Recent Developments in Payments’ Innovations


7. Connect with Your Customers
Yes. Talk to them, or at least connect with them throughout the customer journey. Communicating with customers is vital to building trust and loyalty. For example, once a customer has placed an order, follow up with an email with the order fulfillment information. Inform them of estimated shipping times, tell them when the order has shipped, and when it has been delivered. Let them know if an order is in stock or back ordered. All these communications are opportunities to connect with the customer and ensure that they contact you before they decide to initiate a dispute or chargeback.


8. Use Recognizable Merchant Descriptors
In many households, there is more than one person ordering goods online, but only one person paying the bill. The person paying the bill may not recognize the merchant descriptor on the statement and may initiate a chargeback. Make sure your business is easily identifiable from your descriptor. Ideally, a google search of your descriptor will take the searcher to your website. Add a phone number to your descriptor so that customers will call you instead of the card provider.

Related: “How to Make Returns and Chargebacks Work for Your Brand


9. Keep Off the Match List
Merchants should be aware of the dreaded Match list? What’s the Match list? Mastercard created the Match list to protect payment providers and acquiring banks from high-risk merchants. To put it simply it’s a blacklist for merchants. Those merchants who exceed a certain chargeback, fall prey to fraud and data breaches, or fail to comply with compliance standards can end up on the Match list for five years. In the meantime, they will find it difficult to find payment providers willing to work with them. 

Verifi by Visa and Ethoca by Mastercard act as early warning systems for chargebacks. They inform a merchant when a customer initiates a chargeback dispute and give merchants an opportunity to reach out to the customer and intervene before a dispute goes to the bank. This keeps merchants below the chargeback ratio that may place them on the Match list. 


An Ounce of Prevention Is Worth a Pound of Cure
Yes, data breaches and fraudulent transactions will blot your copybook as a merchant, as will failing to stay compliant with standards and regulations. And yes, integrating your payments infrastructure with fraud prevention solutions is a proactive way to manage your chargebacks. But the best way to minimize your exposure and avoid the dreaded Match list is to identify all your threats, which includes your customers, and address them.

As a merchant, a strong defense against chargebacks is to take on friendly fraud and improve your customer relationships. This can be accomplished by increasing touch points and connecting with customers more often. Educate your customers on your excellent service, easy returns and refunds, and quality products. Give your customers the information they need to feel secure in their transactions and verify them.

Lastly, make sure your customers contact you before they contact their card provider. And, if they don’t and they initiate a dispute, Verifi by Visa or Ethoca by Mastercard can help you intervene to resolve a problem before you are landed with the chargeback fees. 

Partner with Cartis Payments, a provider of streamlined digital payment gateways. Find out how easy it is to integrate chargeback management solutions, fraud protection, and early alert tools like Verifi and Ethoca with your existing infrastructure.