A chargeback is a process that allows a customer to dispute charges on their credit card, usually as a result of unfortunate events such as fraud or defective goods. While these situations are rare, they can also be costly and put businesses at risk of losing trust among customers.
If you’re an ecommerce business selling products online, you understand the importance of building trust with your customers. You want them to feel confident in their purchase, knowing they can reach you if they need anything.
In case the worst happens, a chargeback is your last line of defense against fraudulent transactions and buyers who aren’t happy with the product they bought from you.
Though merchants are eager to keep shoppers happy and earn return custom, it is understandable to want to push back against requests that take unfair and disproportionate advantage of the system.
This is when chargeback recovery comes in to help.
A customer makes a purchase on a merchant’s website and decides to dispute the charge or ask for a chargeback. When this happens, the card issuer will investigate the case to determine whether the transaction was legitimate or fraudulent.
If the chargeback is legitimate, it will be forwarded to the merchant for resolution. In many cases, however, the cardholder didn’t actually experience any fraud, but simply decided that they didn’t want to pay for the purchase.
To initiate a chargeback recovery, the merchant will need to provide a reason for why the chargeback is illegitimate. The merchant will also have to prove that the transaction is legitimate. And in the process, they will be expected to provide documentation and evidence to support their case.
Most chargeback abuse, comes from fraudsters and scammers who try to steal money from merchants. These individuals may attempt to file false chargebacks in an attempt to steal money from the merchant, or they may be attempting to steal merchandise.
Chargeback abuse is a serious problem that negatively impacts merchants across all industries. Some chargeback abuse comes from legitimate customers who are either misinformed or have legitimate reasons for asking for a chargeback.
Some industries experience more chargeback abuse than others. Merchants in the apparel and ecommerce industries, for example, are more likely to experience chargeback abuse than merchants in the automotive industry.
Chargebacks cost retailers billions of dollars every year. According to data from The Nilson Report, chargebacks amounted to $32.8 billion in 2016.
While this might seem like a large number, chargebacks have actually been falling since 2009. While the Nilson Report attributes this decline to an increase in chargeback prevention, the rise of chargeback fraud has likely played a significant role as well.
It is important to be aware that chargebacks are not easy to recover. When a customer initiates a chargeback, they are basically making a claim that the merchant committed fraud. Thus, the burden of proof will be on the merchant to prove that they did not commit any wrongdoing.
As such, merchants must be able to prove three things in order to successfully recover a disputed chargeback:
- The transaction is legitimate.
- The customer did not experience any fraud.
- The customer is not entitled to a chargeback.
Chargeback recovery services (also known as chargeback representment services) are provided by third-party companies that help merchants dispute chargebacks. Alternatively, merchants can attempt to dispute chargebacks on their own.
However, studies have shown that chargeback recovery specialists are far more successful at recovering chargebacks than merchants who try to do it on their own.
Chargeback recovery services are offered on a subscription model. Merchants pay a monthly fee for access to a platform where they can log any chargebacks they receive and submit evidence to support their case.
Chargeback recovery is a last-resort solution that should only be pursued when every other chargeback prevention strategy has been exhausted. Merchants should always attempt to prevent chargebacks from happening in the first place.
By taking these steps, merchants can drastically reduce the number of chargebacks they receive:
- Build trust with your customers.
- Use a chargeback prevention tool, like Spotrisk.
- Stay in communication with your customers.
- Closely monitor your customers’ purchase journey.
- Handle disputes promptly.
Yes, studies show that friendly fraud will only increase over the next decade. As such, chargeback recovery services are likely to become increasingly important in the years ahead.
With chargebacks expected to cost retailers over $32 billion in 2022, merchants can’t afford not to prepare for an increase in chargeback abuse.
By working with a chargeback recovery service, merchants can reduce their number of chargebacks and increase their overall profit.