It’s crucial to always work on lowering chargebacks, preferably below .56%. This ratio measures how many chargebacks you receive per number of transactions. For example, if you process a thousand transactions and get hit with 10 chargebacks, your ratio would be: 10/1000 = .01, which equals 1%. Ideally, merchants will avoid chargebacks altogether. However, most businesses will have to deal with chargebacks at some point.
Your chargeback ratio is a key number used by both financial institutions (such as banks) and card networks (like Visa). The ratio makes it easy to see how many chargebacks a particular business incurs. If a business gets hit with excessive chargebacks, not only will they be hit with chargeback fees, but their acquiring bank might drop them altogether.
Further, card networks like Visa and Mastercard could levy additional fees and penalties. If you keep lowering chargebacks and get your chargeback ratio below .56%, however, you should be able to avoid these hassles and penalties. Not sure how to reduce chargebacks? Let’s go over some tips.
Offer Easy and Cheap Returns
Businesses don’t like issuing refunds and processing returns. Unfortunately, returns can take a bite out of your bottom line, but chargebacks are worse. When companies don’t offer returns, dissatisfied customers may simply turn to their bank to ask for a chargeback. And if the bank sees that a merchant doesn’t offer returns and thus a chargeback was the only recourse, they may be more likely to approve the chargeback.
In the long run, merchants will want to lower chargebacks and returns. However, if the choice is between processing a return and getting hit with the chargeback, the former is typically the better course of action.
When you get hit with chargebacks, you’ll not only lose the revenue from the sale (which you’ll also lose if you refund the customer) but you’ll also have to pay chargeback fees, which range from $20 to $100. Further, your chargeback ratio will rise and if it gets too high, you may be penalized further.
Clarify Your Billing Descriptors
Setting billing descriptors is one of those simple little tasks you may rarely think about, but that could also have a major impact on your chargeback ratio. Customer confusion is a leading source of chargebacks, and often, it’s innocent, meaning the customer isn’t trying to defraud the business, but rather, they’re simply confused.
Let’s say Jane Doe owns a cafe and sandwich shop called “Doe’s Cafe.” Yet her coffee shop is organized under an LLC called Jane’s Coffee and Food. If a cardholder who had lunch at Doe’s Cafe comes across a charge from Jane’s Coffee and Food, she might not recognize the charge and may think that it was an unauthorized purchase.
Confused, the cardholder may reach out to their bank to file a chargeback. Unfortunately, Jane Doe may find herself dealing with a chargeback and all the associated penalties owing to a simple and innocent misunderstanding. By ensuring that billing descriptors are clear and easily recognizable, you may be able to reduce chargebacks.
Use Chargeback Alerts and Data Sharing Tools
Merchants can now use tools like Ethoca’s Consumer Clarity™ to clear up confusion. With Consumer Clarity™, Ethoca will automatically share additional information regarding a purchase with the cardholder and their card-issuing bank. With Jane Doe’s Cafe above, sharing more information may be enough to clarify the misunderstanding and thus head off the chargeback.
Chargeback alerts are another effective tool for preventing disputes. With a chargeback alert, a merchant will be notified of a pending chargeback. Crucially, the merchant can try to resolve the issue, say by issuing a refund, before the chargeback is officially filed. By preempting the chargeback, you can prevent chargeback fees and safeguard your chargeback ratio.
Use a Chargeback Management Platform
There are many different tools you can use to fight chargebacks. Crucially, in a certain sense, there may be too many tools. The more tools you have, the better, but organizing, wrangling, and leveraging these tools can become cumbersome and even overwhelming.
If you decide to dispute a chargeback, you can go through the representment process, arguing that the charge was legitimate and that the customer has no grounds to secure a chargeback. The representment process involves a lot of work and you have to be mindful of approaching deadlines. Some businesses simply don’t want to deal with all the hassles and instead accept chargebacks even if they could have potentially won the dispute.
The good news is that a chargeback management platform can increase productivity and make the whole chargeback representment process easier to manage. You can bring disparate tools, such as chargeback alerts, from various providers, under one roof. Many companies also find that the right chargeback management tools make training and knowledge retention easier as well.
Need help with chargebacks? Contact the ChargebackHelp team today!