4 Proven Best Practices to Reduce E-commerce Chargebacks

4 Proven Best Practices to Reduce E-commerce Chargebacks

The pandemic became a boon for e-commerce businesses, fueling the trend of online purchases. The industry hasn’t lost momentum even as the pandemic is far behind. Customers love the sheer ease of buying from anywhere, and merchants get cost savings on retail space and warehousing operations.

Despite the growth and revenue opportunities, e-commerce sellers deal with several challenges. Chargebacks are one of them, with 65% of merchants reporting an increase during the last three years. The losses they cause amount to millions, reducing profits and the growth potential of businesses. While overcoming chargebacks seems challenging, awareness and strategy can be your saviors.

Here are a few insights to help you identify the causes of chargebacks and mitigate the risk in the long run:

What Are E-commerce Chargebacks?

E-commerce chargebacks happen when customers report fraudulent transactions on their cards to their credit issuers. The bank or card issuer initiates the reversal of the transaction to protect cardholders from unintended purchases of faulty products. They also safeguard consumers from fraudulent transactions on stolen credit cards.

E-commerce chargebacks can also happen due to the following reasons:

  • First-party fraud: Cardholders raising transaction disputes for legitimate purchases due to problems with the purchase or dissatisfaction with the merchant
  • Friendly fraud: Customers changing their minds regarding a purchase, such as deciding to forgo an impulsive purchase
  • Merchant error: Buyers initiating a complaint to their credit card company for the product or service being faulty or below expectations 

In either case, retailers bear the brunt of the chargeback. Along with the transaction cost, they are liable for overheads like packaging, shipping, and other expenses. By 2023, a single chargeback is expected to cost $190, based on an average transaction value of $90. With increasing fraudulent online returns, you can imagine the extent of loss your business may face.

Preventing E-commerce Chargebacks

Ethoca notes that chargebacks can be expensive enough to affect your bottom line. The more concerning part is that the cost of e-commerce chargebacks is expected to touch a staggering $1 billion in 2023. 

However, you can address the concern with a preventive approach. Preventing chargebacks requires a strategic approach, with several steps spanning different areas. Here are a few actionable tips to build your defenses against chargebacks: 

Optimize the Checkout Experience 

A customer complaint is often the starting point of merchant error and friendly fraud chargebacks. If you can avoid them, you automatically prevent chargebacks. The best solution is to optimize the customer checkout experience and provide support throughout the buying journey. 

Communication is also critical because chargebacks happen when customers reach out directly to their credit card issuer rather than seeking a resolution from the retailer first. If you are proactive about resolving matters amicably and quickly, you may prevent chargebacks and build loyal customers ready to stick with your brand. 

Follow Proven Payment Protocols

Statistics show that the global e-commerce online payment fraud in 2022 was nearly $41 billion. While the number is massive, fraud is often preventable, provided you follow proven payment protocols. They can also reduce chargebacks. With correct payment protocols, merchants can spot online payment fraud.

Reliable protocols include capturing the customer’s IP address, requiring proof of delivery, and using CVV verification. These steps prevent the approval of fraudulent transactions in the first place, avoiding potential chargebacks down the line. 

Implement Fraud Detection and Prevention Solutions

Following reliable payment protocols reduces the risk of chargebacks, but things may still go wrong. Fortunately, you can find solutions to detect and prevent fraudulent transactions that may lead to chargebacks. Opting for chargeback prevention services is an even better idea because experts do the heavy lifting for you. 

For example, there are tools to raise alerts when anomalous transactions occur. Some red flags are multiple orders, unusually large purchases, or repetitive failed attempts within a short period. Recognizing purchases translates into fewer transaction disputes, resulting in a better customer experience. 

Have Clear and Accessible Store Policies

Creating clear policies regarding returns and refunds can significantly dissipate the risk of transaction confusion, another leading cause of chargebacks. If customers can easily locate, access, and understand these policies, they are less likely to contact their credit card company for remediation.

Also, ensure they know where to contact your support team when they have doubts and concerns regarding transactions. You can go the extra mile by providing alternative contact methods. These practices foster trust and transparency, benefitting your business beyond limiting chargebacks.

The Bottom Line

E-commerce chargebacks are a reality merchants have to deal with. But you shouldn’t let them lower your revenues and profits. You can follow these preventive measures to stay on top of fraud and transaction confusion. 

Also, foster better customer experiences and stronger relationships to ensure that buyers connect with your support team when they need help. Once you sort out these issues, chargebacks no longer remain a problem for your business. 

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.