Preventing chargebacks is good for your business and the people who buy your software, but preventing them requires an understanding of their causes and of how to reduce them.
Chargebacks occur when consumers tell their banks to reverse a charge on a payment made through the bank, often due to a fraudulent charge from credit card theft.
Let’s say Nancy D. Conzhumer is looking at a credit card statement and sees that her bank billed her $49.95 for some virtual disc jockey software. Uh-oh! Nancy suspects someone has stolen her credit card information and used it to purchase software online. She calls her bank and disputes the bill. The bank representative investigates the matter and determines that fraud has indeed occurred. The charges are reversed. The bank recoups the Nancy money from the software merchant’s account and charges them $50 for the trouble. As it turns out, what the merchant thought was recognizable revenue is actually an expense.
When merchants continue to compile chargebacks from customers credit card processors revoke their ability to process credit card payments which effectively shuts down an online business. This is a simplified account of what actually happens during a chargeback process, but it highlights the consequences of chargebacks on your business.
Chargebacks are there to protect consumers against fraudsters and unscrupulous businesses. The ability to recover funds spent by identity thieves or for unfulfilled orders are comforting to a consumer. But when chargebacks pile up it can be debilitating for merchants. So how does the whole chargeback process work both from a merchant’s point of view and a consumer’s? What costs come with chargebacks? How can merchants reduce their chargeback costs?
This infographic from Chargebacks.com seeks to understand chargebacks from the customer and merchant points of view. It lays out some of the fees and costs associated with chargebacks, and provides merchants with important chargeback data and strategic tactics to combat chargebacks.
One important point made about reducing chargebacks is to have clear terms and conditions that reduce friendly fraud. Friendly fraud occurs when a consumer legitimately placed an order online but later disputes the charge. Sometimes, friendly fraud is the result of difficult or unclear refund policies. Consumers feel the product they bought simply does not suit their needs, but do not know how to get a refund.
With chargebacks, not only do you lose out on the initial sale, you face expensive bank fees and severe damage to brand and reputation.
Tell us about how complicated and convoluted the chargeback process really is in the comment section.