There is no doubt that the availability of credit and debit cards is the number one reason for such explosive growth in eCommerce. Those little plastic rectangles issued by financial institutions around the world have made it fast and easy to place orders online and this has also led to major growth in most industries and within businesses of all sizes.
However, there is a flip side to that and it would be those dreaded chargebacks. Are you aware of what those chargebacks are truly costing your business? Once you understand the leading causes of chargebacks, you can actively begin taking measures to prevent them. At the very least, you want to mitigate the losses you sustain with every successful chargeback. Here is a brief look at what this entails.
Fraud and Merchant Error
If you are noticing an inordinate amount of chargebacks, it could be one of three things. This is the point where you need to do a little research into the kinds of chargebacks you are seeing. They can be summarized as:
- Friendly fraud
- Merchant error
- Criminal fraud
While criminal fraud is the easiest to understand, it may not be the easiest type of chargeback to prevent. Merchant errors are the easiest to prevent because it’s something that happened inhouse as opposed to friendly or criminal fraud perpetrated by the consumer.
However, the reasons why you are experiencing so many chargebacks must be understood in light of what it’s costing you. We’ll look at that more closely in a moment, but for the time being, it should be said that an inordinate number of chargebacks can place your business within the category of “high risk.” Typically, this means you pay more for card processing fees even though you can still find competitive rates with a high risk merchant account provider.
Common Reasons for Chargebacks and Chargeback Prevention
While criminal fraud and merchant error are the easiest to understand in terms of chargebacks, friendly fraud is not as cut and dry. Friendly fraud simply means that a consumer ordered something online and then after receiving what they ‘paid for’ decide that they no longer want or need it. Perhaps they are claiming it is defective in some way.
Whatever the case, if you are seeing a high number of ‘friendly fraud’ chargebacks, the place to begin prevention is to eliminate criminal fraud. Sometimes there is no easy way to prevent it because things change. Sometimes the consumer feels they’ve spent beyond their budget so they want to return an item and other times there really may be something wrong with the product or one that doesn’t live up to advertising. Some merchants feel that the cost of providing return postage and packaging material is not worth the effort of contesting the chargeback, so they write it off as a ‘business loss.’ That can be a serious mistake!
What Are Chargebacks REALLY Costing You?
Consider for just a moment that each successful chargeback is costing your eCommerce business just under $4 per chargeback. Next consider a huge rise in fraud just since the onset of the pandemic and you will clearly see that this is a sizeable amount and one of the main reasons why you might be tempted to write off those chargebacks, warranted or not.
Unfortunately, as stated above, this can put you in a ‘high risk merchant’ category which will raise the fees you are charged by those payment processing companies. However, there really are payment processing companies that have found it beneficial to keep their rates more in line with low risk merchant fees. Since the process of preventing fraud can be extremely challenging, your best solution is to find a payment processing service that offers competitive rates.