Imagine this: You’re a restaurateur and the lunch rush finally eases, tables clearing out, the flood of orders now cooling to a trickle. Another fantastic few hours for your thriving business, with great food and excellent customer service drawing patrons in. Success puts a smile on your face. Your phone vibrates, an email incoming. You expect to field a message from a supplier, or perhaps someone dropped a resume for an open position on your team. Instead, you find out that you’ve been hit with a chargeback.
Suddenly, your smile turns to a frown and that fleeting success-driven happiness evaporates with a sigh. You pull up the details on the transaction and immediately recognize it because you chatted with the customers, caught their names, and they heaped praise on your food. Now they’re filing a chargeback!? What gives? Unfortunately, some cardholders end up filing chargebacks on valid purchases, sometimes by mistake, sometimes because they’re looking to commit fraud.
We’ll take a look at why customers may file a chargeback even if you, the merchant, know that the transaction was valid. We’ll also cover considerations for preventing and reducing fraud. While chargebacks are a net negative for merchants, there are many steps you can take to fight and mitigate them. Anyway, let’s look at some of the many reasons customers file chargebacks over legitimate purchases.
Scammers Are Engaging in Fraud
The first and most common reason a cardholder is filing a chargeback with a valid transaction is simply because they’re trying to scam the business. There’s no such thing as a free lunch, but if a restaurant patron uses the chargeback process to claw back the money they spent on lunch, it could end up being free from their perspective. Unfortunately, the restaurant will have to pick up the tab and they’ll get hit with chargeback fees and other penalties as well.
This type of fraud is often called first-party fraud or friendly fraud (note: it’s NOT friendly at all). It’s not just restaurants, of course, that have to deal with customer chargebacks. Essentially every merchant or business that sells directly to customers could get hit with chargebacks. Mastercard reports that more than 60% of chargebacks are the result of first-party fraud.
That said, cardholders can engage in chargeback fraud even if their goal isn’t really to score free products. A cardholder might have buyer’s remorse or may not want to deal with a difficult return process, for example. Yet while the motive with something like buyer’s remorse may not principally be to defraud the merchant, it’s fraud nonetheless. In these cases, it’s wise for merchants to offer easy-to-exercise return policies to prevent chargebacks.
There Was a Billing Mistake or Misunderstanding
When cardholders go through their transactions, they may notice a billing error. For example, a restaurant may offer free drinks with a lunch set, but a mix-up may have happened and the customer got charged for a drink anyway. In these cases, it’s best to quickly offer the customer a refund, especially if you are contacted before a chargeback is filed. The refund could prevent a chargeback and the associated penalties.
A cardholder may also not recognize the charge. It’s possible he or she simply forgot about the transaction. Vague billing descriptors are another common issue. For example, the customer may have dined at Jim’s Acme Diner but got a bill from Jim’s Acme Holding Company, the latter of which may not be recognized. The customer might think that he or she was defrauded upon receiving the bill. Simply using clear billing descriptors could prevent such issues.
The Order Failed to Meet Expectations
Many customers turn to chargebacks if they find that a product or service simply didn’t meet expectations. Even if a customer at a restaurant voiced satisfaction over their meal, they may not have actually been satisfied. Offering refunds and other ways to mitigate dissatisfied customers can reduce chargebacks.
It’s also wise to set proper expectations. If a restaurant promises big portions via their advertising campaigns but then delivers skimpy meals, customers may feel like they got ripped off. Likewise, if an online merchant claims that products are top-quality and made with only the finest materials, but in reality, the goods are cheap and shoddily manufactured, it could lead to chargebacks. It’s always best to be forward and honest.
Other Common Reasons Customers File Chargebacks Over Valid Transactions
The list of reasons a customer might file a chargeback over a valid order goes on and on. Some other common reasons include:
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Slow customer service- If a customer reaches out for a refund but you don’t reply quickly, they might turn to their bank.
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Slow delivery- An especially common issue for online merchants, if an order doesn’t turn up in time, the customer may think they’ll never get it, and thus could ask their bank for a chargeback. Providing tracking data can reduce mix-ups.
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Unexpected fees- Let’s say a restaurant promises lunch for $15 but then tacks on a 25% service fee. A customer may balk at the additional charge, especially if it was not clearly and honestly communicated.
Many other issues could lead to chargebacks with valid transactions. The good news is that merchants can fight chargebacks with the right strategies and tools. ChargebackHelp makes it easy to prevent and combat chargebacks. Clients can use chargeback alerts, data, billing information, and much more to prevent and reduce chargebacks. In the long run, this could pave the way for success.