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What Causes Chargebacks?

August 1, 2019 • by shall

Chargebacks aren’t something any merchant wants to see. It means a payment you thought you were getting has gone away, and the company that paid you will usually demand fees for both coming and going. Merchants generally want to avoid giving out refunds or comping their products or services, but chargebacks are particularly bad because since they leave you with less money than when you started. Fortunately, you can see what most chargebacks are for since they each come with a reason code, but if you’re new to electronic payments it helps to know what you’re in for.

Friendly Fraud

“Friendly” fraud gets its name because customers demand chargebacks for what sound like sensible reasons.  They might say they never received their product in the mail, they didn’t get the service quality the merchant promised, or they canceled their monthly service but got charged for it anyway.  Unfortunately, it’s hard to tell when a customer is telling the truth or lying, especially if you run an online business.  Friendly fraud may account for 60 to 90 percent of all chargebacks depending on the source.

Affiliate Fraud

Affiliate marketing is where you have an independent contractor promote your business and then give them a percentage of the sales they send your way.  It can be a great way to get your name out there in today’s busy online world, but unscrupulous affiliates can create a bunch of dummy accounts to use their links, buy your products, and then use chargebacks to get the money back and then pocket their percentage.  Keep an eye on where your chargebacks are coming from if you offer an affiliate marketing plan.

Customer Service Issues

There are times when customers would be fine with your products and services except for a few questions or issues they have.  Good customer service means answering these questions and addressing these issues quickly and completely, and if you don’t then your customers can become frustrated and ask for a chargeback rather than go to you directly for a refund.

Fulfillment Problems

Fulfillment means getting your customer’s order to them successfully, whether that means handing it to them in person at a store, shipping it to their home, or giving them a link to download the product.  If the customer doesn’t get what they want, they’ll want their money back instead.  To avoid chargebacks for this reason, make sure you have a way for customers to contact your business and get a replacement, a refund, or an explanation for what’s taking so long.

While you can’t stop chargebacks completely, you can minimize them by keeping an eye out for fraud, being responsive to your customers, and making sure they have alternatives that will keep them satisfied and not cost you as much money.  You can use the chargeback reason codes to see the areas where you need work, but a good business plan and good customer service will go a long way to minimizing your problems.

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