Chargeback
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Have you ever reviewed your bank statement and noticed you were double-charged for something? One way to resolve the issue is to dispute the charge with your bank and explain why you shouldn’t be responsible for it.
This is an example of a dispute. It’s when a customer files a claim with their bank over a payment transaction. A chargeback is when a bank reverses funds from a business to the cardholder.
Why are chargebacks important?
Chargebacks and disputes are expensive. The costs include:
- Loss of revenue: Merchants must refund the transaction amount.
- Chargeback fees: Payment service providers charge $15 to $50 per dispute.
- Dispute and fraud monitoring programs: High chargeback rates may result in additional fines from Visa or Mastercard.
- Operational costs: Businesses must allocate resources to dispute management and fraud prevention.
Preventing chargebacks is essential to protecting revenue and maintaining healthy payment processing relationships.
Related Article
Involuntary Churn: When a legitimate payment fails
Common reason for chargebacks
Inaccurate amounts: Consumers might dispute charges with incorrect transaction amounts.
Legitimate fraud: Fraudulent transactions account for a significant percentage of all chargebacks. This is when a cardholder's physical card is stolen and used without their knowledge, or a fraudster gains access to their account information and makes unauthorized purchases.
Friendly fraud: Sometimes called chargeback fraud, friendly fraud is a spectrum of fraud activities ranging from the innocent to the deliberate. This category differs from legitimate fraud because the customer is involved somehow. A few examples:
- Forgetfulness: A customer might not remember purchasing a product and file a dispute.
- Family fraud: This occurs when someone in the cardholder's family makes a purchase without the cardholder's knowledge or consent.
- Bad billing descriptor: A billing descriptor appears on a bank statement and describes a payment. Sometimes, the billing description is vague and confuses customers.
- Buyer’s remorse: A shopper might make an impulsive purchase and later regret it. Instead of asking for a refund, some customers file a dispute for a chargeback.
Merchant or product issues: This category includes duplicate charges, inaccurate charges, failed deliveries, and dissatisfaction with the product or service.
Best practices to reduce chargebacks
1. Partner with a chargeback prevention solution
Chargebacks are costly and complicated. Partnering with a chargeback prevention solution will reduce your dispute and chargeback rates, freeing up resources for other revenue-generating activities.
Butter’s dispute solution intercepts disputes before they reach your payment processor and then proactively refunds or fights them using historical transaction data and merchant-tailored rules. The result is fewer chargebacks and a higher win rate.
2. Emphasize your subscription policy
Subscription businesses are especially susceptible to chargebacks. Subscription-focused companies often offer free trial offers. When regular recurring payments kick in, customers sometimes dispute them. You can reduce disputes associated with free trials and promotions by offering a frictionless cancellation process and highlighting your subscription policy during checkout.
3. Write accurate billing statement descriptors
Reduce customer confusion and disputes by using accurate billing descriptors. Your descriptor should include your business’ name or an easy-to-recognize abbreviation. If you don’t use an accurate descriptor, subscribers might think the payment is fraudulent.