Ah, chargebacks…the bane of any high–risk business (or any business, really).
While most seem like a minor inconvenience on the surface that you can ignore, more than a handful (and especially one right after another) can quickly turn into a massive, costly issue for a high-risk merchant.
While the point of chargebacks is to protect the customer, 80% of consumers have openly admitted to filing a chargeback merely out of practicality. Yikes.
If you’d like to avoid that as a high-risk business (because of course you would—why wouldn’t you?), we’ve explored the ways a high-risk business can navigate these inevitable obstacles all while streamlining your overall operations and handling the disputes.
Plus, you’ll learn how a specialized payment service provider can be a buffer against the repercussions of excessive chargebacks.
1. Understand the Common Causes of Chargebacks
The first step in preventing imprudent chargebacks is, of course, understanding the basic causes of chargebacks.
While a chargeback here and there isn’t initially something to fuss over, they can quickly evolve. Hence, it’s key to recognize chargeback patterns and the reasons behind them, as they could very well turn out to be an attempt at fraud.
Some basic strategies to implement to prevent chargebacks when you first notice them include:
Advanced payment processing systems
Clear service and product descriptions
Clear policies regarding returns and refunds
Detailed transaction records, parcel tracking, and delivery confirmation tools
Leveraging chargeback alerts
Maintaining optimized security protocols
Educating the customer
However, the potential sources of a chargeback can vary depending on the specific industry you’re operating within.
So, it’s wise to do your due diligence on your industry-specific risks first and foremost, and then implement strategies that accommodate your individual needs.
Below, we’ve unpacked each of the actionable strategies to apply in any high-risk industry to avoid and reduce chargebacks.
2. Optimize Your Payment Processing System
An optimized system that provides modern tools to monitor disputes, pick up on patterns, and prevent them from turning into chargebacks can help you stay ahead of chargebacks before they occur.
The features used for these purposes nowadays include:
AVS: Address Verification Service to detect suspicious transactions
CVV: Card Verification Value to authenticate a credit card prior to completing a purchase
2FA: Two-factor authentication to protect a user’s data
3DS: An additional layer of protection on online transactions
SSL: Security protocol for data encryption
AI-driven monitoring: Machine learning tools that aid and improve human capabilities in monitoring and picking up on suspicious activities
3. Provide Clear & Detailed Product Descriptions
Unclear product descriptions, misleading images, and overexaggerated claims of service can lead to customer dissatisfaction and subsequent chargebacks.
To avoid these, ensure your descriptions are detailed and accurate, giving your consumers realistic expectations. Do not sell a dream, which will later result in an unhappy customer and likely a chargeback.
Portraying clear, high-quality images of your products is another great way to ensure your customers know what to expect.
Additionally, you can increase customer trust in your offerings by incorporating customer reviews, ratings, and testimonials and showcasing your established reputation (often through ratings from third-party websites like Trustpilot).
One of the easiest ways to prevent chargebacks is to offer great customer service and high-quality products. If you're an EU-based business, for example, we've seen that it's always better to have a warehouse in Europe, so you can ship faster. Also, ensure your product is great, so you're getting happy customers who receive something of quality.
4. Implement Transparent Policies (And Communicate Them Effectively!)
Clear and easily accessible website policies regarding returns, refunds, and cancellations will guarantee fewer chargebacks and ensure customer satisfaction. To do this effectively, though, we’ve found it best that these policies are made clear at different stages of a purchase.
For instance, explaining how to return a defective product clearly in a designated section on your website, in the confirmation email, and as part of package tracking notifications makes it easier to deal with any disputes that might arise (and even if none do, you’re giving your customers peace of mind and demonstrating to them that you’ve thought this process through).
That way, you’ll have fewer misunderstandings with clients and prevent disputes from turning into a chargeback.
A lot of customers don't read website policies, but it's important to have them regardless. Having them (and ensuring they're up to date) can help you dispute or win a chargeback with an acquirer. They might not help you prevent them from occurring in the first place, which is what is most important, but they will help you avoid getting penalized for them.
5. Use Delivery Confirmation and Tracking for Shipments
This is a simple yet effective tip we find most customers don’t know can positively impact their high-risk business! Research shipping companies and choose a reliable carrier that can provide transparent and timely tracking information.
The right choice can help you safeguard your eCommerce business from friendly fraud cases or non-receipt claims.
Communication is key, so it’s important to keep the customer up-to-date with the state of their order, reassure the client of your legitimacy, and ensure the security of the order process and their data.
6. Leverage Chargeback Alerts and Prevention Services
Nowadays, there are payment service providers specialized in high-risk industries whose sole purpose is to prevent chargebacks.
To do that, these modern third-party service providers have come up with tools and methods to notify businesses of disputes in real time, giving them a chance to address and resolve issues before they can escalate.
In today’s day and age, where cyber threats and new-age chargeback schemes are more common than ever, it’s crucial to implement the right tools to protect your business.
This approach will help you prevent excessive chargebacks, maintain smooth operations, mitigate risk, and keep your merchant account in good health.
If you've set up chargeback alerts, you usually have 24-72 hours to provide the refund after receiving the alert. Based on the ticket size (less than $500, for example), you might be able to issue an automatic refund, which we sometimes recommend depending on the business and the situation. At the end of the day, taking a chargeback isn't a huge problem unless you have a lot of them.
7. Regularly Review and Update Security Protocols
The internet is teeming with AI tools these days, which means that it has never been easier to carry out systematic fraud schemes without much knowledge.
Because people will go to great lengths to hack into websites or access sensitive data, we recommend all our customers learn to stay ahead of fraudsters by constantly updating and routinely reviewing their business’s security measures.
However, just as it’s easier than ever to access AI fraud tools as a hacker, it’s also easier than ever to access fraud prevention tools. Such appliances include tokenization, 3D secure systems, modern security protocols, and more.
Implementing the tools will ensure more secure transactions, enhanced data security, protection against unauthorized transactions, and peace of mind about your business’s overall defense system.
8. Educate Customers About Chargebacks
Taking a proactive approach to preventing chargebacks can save your business. While there are several ways to stay ‘proactive’ regarding chargebacks, perhaps the most important is to educate your clientele on the negative impacts chargebacks can have on a business.
For example, your average customer likely doesn’t even know what initiating a chargeback means for the business itself. That’s why even the most loyal customer might turn to filing a chargeback with their credit card issuer purely out of convenience.
Creating easily understandable guides on how to deal with a purchase in the case of dissatisfaction can save you time, energy, money, and your reputation regards chargeback rates.
How FastoPayments Helps Reduce Chargebacks
At FastoPayments, our aim regarding chargebacks is to prevent them before they occur. That’s why our high-risk merchant services include tools such as:
Transaction monitoring by a human expert for the first few months (that then gets handed over to AI-driven systems after for improved and automated monitoring)
Real-time chargeback alerts
Tokenization
3D secure systems
SSL
KYC procedures
Streamlined payments with maximized security
High-risk tailored risk assessments and mitigation strategies
High-quality and timely customer support to resolve disputes in real-time
Automated refund processes
While chargebacks might seem unavoidable for any business, high-risk or not, working with the right high-risk merchant services provider can help you reduce them or even prevent them from happening too frequently.
At FastoPayments, we have measures in place to protect you. Get a free, no-obligation quote for a high-risk merchant account here to learn more about our services.
