HomeThe costs of chargebacks are anything but friendly.CommerceThe costs of chargebacks are anything but friendly.

The costs of chargebacks are anything but friendly.

Feel the power of taking charge when it comes to costly chargebacks

To your customers an honest chargeback may seem like no big deal—they ordered something that never arrived, or they bought it in your store, took it home and it didn’t work so of course they should receive a refund for it.

But what they don’t know is that it costs you more than just the value of the product that was lost or the service that was wasted. From costly fees—usually between $20 and $100 per chargeback—to operational costs including shipping and labor, it’s estimated that chargebacks cost retailers billions each year. And for many retail owners and operators who have worked hard to stay in business during a challenging time, chargeback costs can threaten already thin profit margins. So, what can you do about them?

Knowledge is power, understand the various kinds of chargebacks

Chargebacks are initiated by your customers to dispute a charge for various reasons. To help stay on top of them, the following is an overview of chargebacks.

When is fraud nice? “Friendly fraud” may sound contradictory, and on the whole it is, but there are cases when consumers genuinely believe they didn’t make a purchase and request a chargeback. For example, a man living in New York sees a charge for something purchased in San Francisco—a place where he’s never stepped foot—and for good reason is suspicious.

He assumes someone living in San Francisco has hacked into one of his electronic devices, retrieved his financial information and is happily using it to buy things, including something from you. So he calls his bank and they start the chargeback process. Unfortunately, what he failed to realize is that your company is based in San Francisco and he did make the purchase online.

Another “friendly” example that is definitely not nice is when one of your customers receives their package and knowingly asks for a chargeback because they either can’t afford it or simply decide to steal from you. Unfortunately, as reported by CNBC Select, during the pandemic there has been an increase in this type of friendly fraud.

Beyond “friendly fraud” there are many other reasons why customers will dispute a charge including:

  • They truly never got the product or service
  • There’s a billing error—for example, being charged twice
  • When it arrived, the product was damaged during shipping
  • The product was not what had been described
  • The payment wasn’t authorized by the card holder
  • Straightforward fraud—their credit card information was stolen and used by someone else

In addition, if your customers decide they simply aren’t satisfied with your product or service they can request a chargeback. It may not be successful, but it’s their prerogative.

Best practices to avoid chargebacks

The way you decide to handle avoiding chargebacks can be tricky business. On the one hand one of the last things you want to do is compromise your customer loyalty and on the other the last thing you want to do is go out of business. So, there’s an inherent conflict that wise retailers keep in mind as they work to prevent chargebacks—but some of the following best practices can help.

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