Chargeback Management: Essential Guide for Merchants in 2023

Managing chargebacks can be a challenging process. At the same time, you have to make sure that customers are satisfied and disputes don’t affect your revenue. However, it’s an essential strategy for preventing and fighting chargebacks, while saving time and money.

Nowadays, chargebacks are very common and pose a serious threat to merchants. 

The good news is, when done right, chargeback management can help you keep these to a minimum. To successfully do this, keeping up with constant regulation updates is a must.

This article is your guide to mastering the chargeback management process and helping your business grow, so let’s dive in!

What is chargeback management and why it’s important

Chargeback management is the process of analyzing the impact chargebacks have on your business in order to recover lost revenue. You can either prevent them from happening or fight them when they do.

Successfully managing chargebacks results in overall business improvement including:

1. Chargeback fraud prevention

Chargebacks were initially implemented to give customers a feeling of security when shopping online. Sadly, they can be unintentionally or deliberately subject to fraud, especially in times of eCommerce business development. 

Companies that practice chargeback management are at lower risk of chargeback frauds. That’s because they can easily distinguish between an honest and fraudulent dispute. If you’re struggling with this particular task, read more about chargeback fraud prevention.

The problem lies in the fact that fraudsters report a chargeback to their issuing bank, instead of the merchant. They’re full of tricks and usually say stuff like: their product hasn’t been delivered, someone used their credit card, they’re not completely satisfied with the received product, etc. In reality, they’re just trying to get something for free. 

2. Revenue recovery

The most important thing is not to avoid chargebacks. If the problem exists, it’s better to address it right away. Avoiding chargebacks can result in revenue loss and falsely identified disputes. On the other hand, careful examination of a dispute helps you identify its true nature. 

Once a merchant gathers enough evidence and can prove the chargeback was in fact illegitimate, presents it to the bank. It’s up to them to decide whether to reverse it. This process is called representment.

3. Improved customer service

No matter the problem, knowing how to deal with customers is crucial for your business. Customers are your biggest asset and their opinion matters.

Effectively managed chargebacks along with data analytics improve customer satisfaction. Companies that do this have more secure transactions and higher customer retention rates.

How chargebacks can affect your business

Once a cardholder files a dispute, merchants have to deal with a pending chargeback. They have to decide whether to accept it or fight it. If they accept it, the amount of the transaction will be debited from their account. Accepting the chargeback is only right when it’s legitimate.

Fighting a dispute means that merchants are suspecting fraud. Even if they’re right and the chargeback is reversed, they’re going to face fees and possible fines and penalties.

What does this tell you?

Both scenarios can be fatal. Merchants who are facing too many chargebacks are more likely to have an increased chargeback ratio, which results in even more fines and penalties. Preventing chargebacks from happening should be merchants’ number-one priority!

Chargeback Management

What types of chargebacks are there?

Every cardholder has the right to request a chargeback. It’s up to merchants to deal with it later and decide its destiny. 

The real question is, why do chargebacks occur

Listed below are three possible reasons:

1. Merchant error

A true example of why you shouldn’t jump to conclusions — the mistake can sometimes be yours. If most of your chargebacks are listed as merchant errors, you should strive to improve work performance, by carefully examining all of your policies and practices.

Some merchant error examples include:

  • The customer is not satisfied with the product’s quality
  • The cancelation process isn’t user-friendly
  • The customer’s account is still being credited after the cancelation

2. Criminal fraud

As much as we don’t like it, cyber-attacks are a part of this world. One has to be aware of their existence and prepare beforehand. Money is usually what they’re after, so cardholders are at constant risk. Whenever you’re handling a chargeback, make sure to always eliminate criminal fraud as a possible option. 

Examples of criminal fraud include:

  • Unauthorized transaction
  • Transaction not recognized by the cardholder

3. Friendly fraud

Friendly frauds are usually the most common types of chargebacks, but also the hardest to fight. If merchant error and criminal fraud have been eliminated, friendly frauds are the only possible reason. 

The problem is, they occur post-transaction when a customer contacts the bank instead of the merchant, which means nothing can be done to prevent them. Not everything can be fixed and not everything lies in your hands.

An example of friendly fraud is when a customer doesn’t want to pay for the product and blames it on the merchant.

Chargeback management plan

Problem-solving should be always timely done. That’s why it’s vital to have a chargeback management plan prepared. When a chargeback happens, you’ll follow a step-by-step guide to handle it effectively. Listed below are a few steps you can follow:

  • Determine the reason for the chargeback. Why is this chargeback requested? Who is the real culprit? Start by reviewing reason codes and chargeback details. Continue with eliminating possible reasons — merchant error, criminal fraud, or friendly fraud.
  • Choose your approach. Once the real reason for the chargeback is determined, you’ll have a clear picture —  whether it’s valid or fraudulent. This plays a huge role in deciding whether to accept or fight the chargeback.
  • Try preventing future disputes. Not every chargeback can be prevented, but some can, and that’s enough to start minimizing them. The key lies in providing excellent customer service along with effective work performance. 

Stages of a chargeback process

Do you know why the chargeback management process is so demanding? 

It’s because a lot of parties are involved. The whole process is time-consuming and can be a real chore. In order to manage chargebacks, a merchant has to be familiar with the overall process:

  • The cardholder notices a suspicious transaction or isn’t satisfied with the quality of the product. They contact their issuing bank in order to request a chargeback.
  • The bank will then review the case and determine if a chargeback should be granted or disputed. In case the chargeback is valid the bank will credit the cardholder’s account with the exact transaction amount.
  • Once this is done, the acquiring bank is notified and they’re the ones to charge the merchant with chargeback fees.
  • The merchant then decides whether to accept or fight the chargeback through a process of careful evaluation, called chargeback management.
  • If the decision is to fight it, evidence is gathered and the chargeback representment  process can begin.
  • Once again, the case lies in the hands of the issuing bank, since they’re the ones to decide the chargeback destiny, based on the merchants’ evidence.

Chargeback management software

Chargebacks represent a serious problem for merchants in 2023. They’re aware of the problem they’re facing and are all about solving it. Chargeback management software is one of the best solutions to achieve this.

They help users to prevent and fight chargebacks, by analyzing chargeback data. The software can be used by both the merchant and chargeback professionals.

To choose the right software, you have to keep your preferences in mind and explore the existing tools. Always choose software, based on what you’re looking to improve. For example, if frauds are what you’re struggling the most with, SEON anti-fraud software will be perfect for you.

Chargeback management software has its benefits and can significantly help users to handle chargebacks. However, the human touch still plays a huge role in the whole process and shouldn’t be underestimated.

Handling chargebacks with ease in 2023

Now that merchants are aware of the chargeback threat, they can start addressing it. As Charles Kettering once said ‘’A problem well-stated is a problem half-solved’’. 

Chargeback management should be practiced by every merchant who craves business development. It’s the only path to recovering revenue losses, improving customer service, and protecting your company from cyber criminal activities — all in one. 

Once you master chargeback management, chargebacks won’t represent a problem anymore. Since chargebacks can slowly kill your business, you should really start taking them seriously and work on a chargeback management plan. 

Think about what’s best for your business and start your chargeback management journey today!

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