By Rodrigo Figueroa, COO, Chargeback Gurus
The spike in holiday spending in November and December is always followed by increased chargebacks in January. While businesses have every reason to be excited about one of the most lucrative times of the year, they also need to be aware of the causes of chargebacks to prepare for the impact it will have on their revenue when those transactions are challenged for a refund come January.
There are various reasons for chargebacks that drain a merchant’s time and resources, but merchants will ultimately benefit from investing the time to understand those reasons to avoid unnecessary payment disputes for genuine transactions and, ideally, avoid fraudulent transactions altogether.
Fortify anti-fraud protections
Payment fraud is on the rise as e-commerce becomes the dominant method of choice for shopping. The general chaos and volume of shopping during the holiday season make these online transactions particularly profitable for cybercriminals. These bad actors expect store owners to be too overwhelmed to scrutinize transactions properly, so it is critical to emphasize cybersecurity measures, utilize fraud detection tools, and maintain detailed transaction records during this time despite the demands of handling the influx in customer traffic.
Simplify billing to reduce unintentional disputes
One of the best ways to reduce unnecessary payment disputes is to ensure transaction payment experiences are as simple as possible to promote clarity and reduce consumer misunderstandings. Confusing billing codes that do not mention the store name or describe the item being purchased frequently cause payment disputes, but this is something companies can remedy or at least anticipate and train customer service staff responses to refund requests.
Often, bank account statements appear as a series of unintelligible numbers, a street address instead of a company name with brand recognition, or an LLC name different from the company name, all of which can lead to customers unintentionally reporting a valid charge as illegitimate. Even recurring charges are often disputed incorrectly due to customers forgetting they have signed up or letting a free trial lapse, neither of which are considered rightful reasons for a chargeback. This can be avoided by making a point of contact to remind the customer before charging their card on file and making it easy to cancel the subscription so that consumers will not feel compelled to rely on chargebacks.
Address intentional first-party abuse
Cases where fraud is committed by the customer, or so-called “friendly fraud,” are based on false claims by a real customer as opposed to a third-party criminal with a false identity or an army of malicious bots. For many businesses, first-party abuse is the leading cause of chargebacks that can lead to penalties and even termination of the merchant account.
First-party abuse is often hard to detect and predict because it has started as a legitimate purchase, but merchants need to be more critical of exaggerated claims and be prepared to fight invalid chargebacks with evidence in a process known as chargeback representment. Merchants must be prepared to maintain detailed transaction records and document customer communications to produce evidence in a dispute.
Implement generous refund policies to reduce chargebacks
Consumers who are unhappy with their purchase may consider that a valid enough reason for intentionally and dishonestly disputing a charge as fraudulent to get a refund, but this is just an evolved form of shoplifting. Shoplifting online actually comes with additional fees and negatively impacts the merchant’s chargeback ratio, which is monitored by card networks. One solution would be to establish a friendly refund process that is easily accessible so consumers do not feel compelled to report through their credit card company so merchants can avoid those additional fees.
The merchant must determine whether a consumer making a simple mistake like ordering the wrong size or finding a cheaper price elsewhere is worth denying a refund. Forgiving these errors can promote customer loyalty, but merchants can also offer price-matching policies to avoid refunding the whole item or ending up with a chargeback. Ensuring that product images and descriptions match the actual product in the first place can also help manage customer expectations so fewer surprises lead to returns or chargebacks.
Sometimes, an item arrives too late for an event or gets damaged during shipping, which should not come at the customer’s expense either. If delivery delays become a pattern, it may reveal that the shipping and packaging crew either need retraining or replacing. But, merchants must diligently track all their metrics to optimize their supply chain and reduce their chargeback ratio.
About the Author
Rodrigo Figueroa is a highly experienced professional in the field of Risk Management, serving as the Chief Operating Officer (COO) at Chargeback Gurus. His primary focus is establishing a sustainable framework that facilitates company growth while overseeing operations, technology, and client success. With over two decades of expertise in the Investment, commercial, and consumer banking industry, Rodrigo has worked across multiple countries in the Americas, Europe, and Asia. His extensive knowledge encompasses governance, controls, e-commerce, payments, cards, P2P networks, and electronic wallets, as well as areas like enterprise and operational risk, cybersecurity, technology risk, audit, international governance, and regulatory management for banking and payments. Rodrigo’s proficiency in English, Spanish, and Portuguese, along with his diverse background and exposure to various markets and cultures, has enabled him to achieve remarkable results in challenging and diverse environments. He holds a Master of Science in Risk Management from NYU and resides in Plano, Texas.
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