Perhaps every business owner heard about the dangers of chargebacks and the importance of preventing them, yet not many entrepreneurs know that one of the most efficient ways to avoid chargebacks is by means of chargeback prevention services. So, what are chargeback prevention solutions and how do they help businesses save their revenue? Let’s figure this out together in this article.
What Is a Chargeback?
First things first, let’s define a chargeback. So, basically, a chargeback is the procedure of refunding a customer after a dispute. It is important to understand that the terms ‘chargeback’ and ‘dispute’ cannot be used interchangeably since a chargeback is the final stage of a transaction dispute. All in all, disputes and eventual chargebacks are a pretty useful feature for customers that protects them from fraud. At the same time, it also gives cybercriminals an opportunity to commit acts of fraud against businesses by opening illegitimate disputes, which is why business owners must take all possible precautions to reduce the number of chargebacks.
Why Are Chargebacks Dangerous?
Getting too many chargebacks is a particularly bad thing for most online businesses since it has pretty nasty consequences in terms of revenue loss and merchant damage. In particular, chargebacks cause the following problems:
- Fees and penalties. Not only will you have to refund a customer after a dispute but also pay a costly fee and, in some cases, even penalties, which ends up being a pretty significant amount of money.
- Revenue loss. Paying for multiple chargebacks eventually leads to rather serious revenue losses, especially if the goods/services you provide cannot be returned and resold.
- Approval rate reduction. Too many disputes that result in chargebacks cause merchant issues and one of the most common ones is approval rate reduction. That leads to the decrease of sales and revenue loss.
- Reputation damage. Poor user experience due to payment issues on your website does not create the best reputation for your website, which repels potential customers.
- Merchant closure. In the worst-case scenario, too many chargebacks can lead to merchants’ closure, and dealing with such a problem is expensive and rather time-consuming.
As you can see, chargebacks create a lot of problems, which is why it is so important to prevent disputes before they become chargebacks, so let’s talk about how to do that in the following paragraph.
How to Prevent Chargebacks?
Preventing chargebacks is possible and not as challenging as some entrepreneurs might think. In most cases, the following tips help significantly reduce the number of chargebacks and safeguard your merchant accounts:
- Use chargeback prevention services like Ethoca and Verifi (which are both available within Germius CRM) to prevent genuine chargeback fraud and friendly fraud.
- Make clear return and refund policies so that your customers know how to return the goods they didn’t like instead of opening a dispute.
- Keep in touch with your clients and make sure to provide them with the details about their order, such as payment status, delivery tracking, etc.
- Make sure you have a reliable customer support service so that your customers can easily reach out to you in case of any issues.
- Cooperate with reliable shipping companies that deliver parcels on time and rarely lose them en route.
- Collect all the info about your orders to increase your chances of winning a dispute in case one happens.
It is a known fact that a lot of chargebacks are requested by fraudsters, which is why using chargeback prevention services is one of the most important tips. But how do these services work? Let’s discuss that in the following paragraph.
Chargeback Prevention Services and How They Work
A chargeback prevention alert is a system whose main purpose is to notify merchants of disputes before a chargeback occurs. That allows the merchant to refund a customer and, therefore, prevent a chargeback. Yes, refunding every single dispute seems a little unfair, yet, in most cases, it’s more reasonable to refund than proceed with a dispute. Additionally, many chargeback prevention services offer anti-fraud protection. For example, some systems, like Germius, offer payment security features that analyze payments based on location, BIN code, currency, etc., and block suspicious transactions, significantly lowering the risks of chargeback fraud.
Chargeback Prevention Solutions’ Workflow
As a rule, the majority of chargeback prevention alerts have a similar workflow, and though there might be some differences, most services prevent chargebacks the following way:
- The card issuer notifies the chargeback prevention system about a dispute
- The prevention system sends an alert to the merchant
- Merchant refunds the customer to prevent the dispute from becoming a chargeback
- The issuer receives an outcome from the chargeback prevention service
As you can see, the workflow is pretty simple, yet it works and helps significantly reduce the number of chargebacks. So, investing in a chargeback prevention alert is obviously a good idea.
Final Thoughts
Chargeback prevention services are a sure way to reduce the number of chargebacks, protect your revenue, and safeguard your merchants. So, no matter if you own a small online store or a large e-commerce platform, using chargeback prevention solutions is a must for you.
