by Stephen Hart, CEO of Cardswitcher
First things first, what is a chargeback? Simply put, a chargebacks is a disputed transaction between a customer and a business.
If the chargeback is successful, the transaction is reversed and the customer has the money returned to his or her account.
While chargebacks were originally created to protect consumers from fraudulent usage of their cards, they are increasingly used by people who simply do not want to pay for goods or services. This is called friendly fraud.
Irish technology company Global Risk Technologies recently investigated the issue and found that an astonishing 86% of all chargebacks in the EU were placed fraudulently.
Legitimate, fraudulent and everything in between, chargebacks pose a serious threat to businesses around the world and result in millions of dollars of lost revenue every single year.
How Can I Limit Chargebacks?
Protecting your business from chargebacks isn’t a huge ordeal and neither is it overly technical. Taking a few simple steps can make a huge difference, reducing the number of chargebacks you receive to a negligible level.
Below are three techniques we recommend you use to help protect your business from the threat of chargebacks:
#1: Choose a recognisable name.
To understand why your name plays a big role in chargebacks, let’s look at US tech company, 37signals. 37signals sells a range of digital products, their most popular being a project management tool called Basecamp.
In their early days, when a customer purchased a subscription to Basecamp, they were billed under the name 37signals LLC.
This left a lot of people confused and trying to work out what the mysterious charge was actually for. Instead of researching the name, many customers decided that it was a fraudulent transaction and requested a chargeback from their bank.
By 2009, the number of chargebacks 37signals was receiving had grown to a concerning level. The company started experimenting with their statements in a bid to reduce the number of chargebacks they had to deal with.
After some trial and error, they opted to switch their billing name to a URL — 37signals-charge.com so now, when someone bought a subscription to BaseCamp, they would see 37signals-charge.com on their statement.
If a customer followed the URL, they were taken to a website that explained what 37signals was and how 37signals was the company behind the product they had just purchased.
Chargebacks fell by 30% overnight, which saved 37signals a huge amount of time and money.
The takeaway tip here is clear: Choose a statement name that your customers will actually recognise!
#2: Clearly offer refunds.
The refund process for bricks-and-mortar shops is pretty straightforward. You go back to the store, find the customer service desk and hand over your purchased items.
For online purchases, however, the process is significantly murkier. Common concerns for online merchants include:
- Who organises the return?
- Who pays for the return shipping?
- When does the merchant actually pay the refund?
- Is the original shipping refunded?
No matter how a refund is handled, it will undoubtedly take up a lot of time and cause a fair bit of stress for both the merchant and customer.
Okay, that’s all very interesting but how are refunds they linked to chargebacks?
Well, if a customer sees a more streamlined way to get their money back, they’ll probably use it. And rightly or wrongly, a lot of people see chargebacks as a hassle free alternative to clunky return processes.
It’s helpful to think about your refund process as being in direct competition to chargebacks. With that in mind, ask yourself whether it’s your returns process is attractive enough to entice your customers through an official route.
To minimise friction on the refunds process don’t ask customers to jump through hoops, don’t ask them to fill out reams of paperwork and don’t employee frontline service staff who can’t actually deal with problems.
Once your customers know that you offer stress-free refunds, they are significantly less likely to resort of chargebacks.
#3: Keep communicating.
Think back to the last time you received poor customer service — not just poor but evasive. The type of service where someone emails you the exact same canned response ten times in a row before admitting they can’t actually help you.
Remember your frustration boiling, your eyes rolling and the urge to slam down the phone?
Well, when a customer experiences that sort of awful service, can you really blame them for resorting to chargebacks?
Do the simple things well and keep communicating. Respond quickly to emails, phone calls and social media posts. Get back to people as soon as you can. Provide genuine answers to their queries.
You’ll be amazed how compliant a customer will be if they think you’re working for them rather than against them.
Average Chargeback Rates.
Industry benchmarks for chargebacks are notoriously rare and inaccurate. The best we’ve found come from Ingenico and break averages down into industries.
Industry Average Chargeback Rate
Software 0.89
Financial Services 0.79
Gaming 0.59
Gambling 0.56
Retail 0.45
Travel 0.37
Media & eContent 0.31
How does your business perform against the industry standards? Let us know in the comments.
CEO of Cardswitcher Stephen Hart spent years in the financial sector, working for giant companies like PwC, RBS and, most recently, WorldPay as their Chief Financial Officer. In 2013, Stephen left his position at WorldPay and officially launched Cardswitcher, a marketplace for payment processor suppliers. Cardswitcher now saves SMEs a collosal £15,358,128 every single year.
