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Chargebacks: What they are, their effects, and how to fix them

There are several variables you must consider when establishing a digital business. In addition to all other elements that an entrepreneur must take care of, digital merchants must also consider risks particular to the virtual arena, such as chargeback requests.

Chargebacks are oftentimes the result of online fraud, they can have devastating effects on your digital store. Nonetheless, there are many business owners that are not familiar with these kinds of events and remain unaware of how they can affect their business.

Here you can find the definition of a chargeback and learn how they happen, what their negative repercussions tend to be, and most importantly, how to prevent them.

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What are chargebacks?

A chargeback (also called a payment dispute) occurs when a customer receives an unauthorized charge on their credit card.

When the customer contacts their bank to report the charge, the financial institution contacts the merchant that processed the transaction to request a refund.

This request for a refund is known as a chargeback or payment dispute and represents an additional cost for digital merchants. Put another way, chargebacks are refunds merchants have to issue when processing unauthorized payments.

It's worth mentioning that there are several reasons why consumers make chargeback requests to their banks, however, the most common reasons are different types of cyber fraud, including card theft.


Why do chargebacks happen to online stores?

It is estimated that 3% of all e-commerce transactions are fraudulent. This means that chargebacks are one of the most common hurdles digital merchants have to overcome.

Online stores that do not have fraud detection and protection mechanisms in place are even more vulnerable to these attacks. When scammers find a page that is not well protected, they often attack it constantly until they are detected.

This means that if your store is not protected, you need to take action as soon as possible to defend yourself from opportunistic fraudsters who might target your page.


What are the repercussions of chargebacks?

The most obvious disadvantage of a chargeback is that the merchant has to issue a refund, sometimes even after the product has been shipped. But, the effects that a chargeback can have go much deeper and are more lasting than losing a limited amount of money or products.

Digital merchants that process unauthorized payments are often fined by the banks of the affected consumers. In addition, banks and other institutions can also add these merchants to blocklists that prevent them from accessing other types of financial services.

Having a chargeback in your digital store is a serious problem. If you don't implement any solutions to detect and prevent bank disputes, chargebacks unfortunately can become the biggest hurdle you’ll need to overcome.

Avoid chargebacks in your store

Solutions to prevent chargebacks

Now that you know what a bank chargeback is and what its disadvantages are, we will share the solutions that you can implement to detect and prevent them.


1. Make sure that the charge
includes the name of your store

When a store makes a charge by card, it appears on the customer's account statement along with a tracking number.

However, many companies use acronyms or abbreviations to identify themselves. If a customer does not recognize the acronyms or abbreviations, there’s a chance that the transaction will result in a chargeback.

To avoid this scenario, you should ensure that your store's name appears clearly on your customers' account statements.


2. Use a reliable anti-fraud system

If you’re researching how to fix a chargeback, then anti-fraud platforms should be your first bet.

Anti-fraud systems like Critical.net allow you to analyze each transaction your digital store processes and determine if it comes from an authorized consumer.

Moreover, remember that the quality of the provider's service will impact the performance of your store, so you need to choose a platform that is innovative and provides good customer service.


3. Write a clear return policy

Your store needs to have an unambiguous return policy, where you should include a segment dedicated explicitly to unidentified payments.

If you let your customers know what the best route is when they find an unauthorized payment, they will be able to contact you as soon as they notice something’s wrong.

This gives you a better chance of identifying each chargeback before completing the product shipment.


4. Keep your payment history organized

Many times fraudsters use their own cards and then contact their banks to process a chargeback for these transactions. In these cases, digital merchants can refuse chargeback requests.

Nonetheless, to verify that the payment was in fact authorized, merchants must keep their collection history organized and detailed. Also, if you implement a fraud detection platform that includes the geolocation of IP addresses, you will be able to verify that accepted payments come from an authorized connection.


5. Maintain constant communication with your customers

One of the best ways to avoid chargebacks is maintaining constant communication with your customers. If your customers are aware of the purchases, returns, and other types of transactions that occur in their accounts, they will be better positioned to identify unauthorized payments.


Are you looking for tools to eliminate chargebacks?
Critical.net is your solution!

Chargebacks can limit your store's growth and result in excessively high costs. Online merchants need to be proactive and protect their stores and create a safe space where their customers can shop and process payments without worry.

Critical.net is a fraud monitoring and fraud detection platform compatible with all types of digital stores in Latin America. Our platform has several validation mechanisms to ensure that each payment made at your store comes from an authorized consumer, therefore eliminating chargebacks arising from electronic fraud.

To learn more about our plans, visit our pricing page or contact our team if you have any questions regarding our services.

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