Reduce ChargebacksHow to Lower Your Chargeback Volume & Keep It Down

Tips & Tactics to Reduce Chargebacks — No Matter the Source or Type

Given the complexities and constraints involved in running an eCommerce business, it’s common for many merchants to relegate chargeback management to the back burner. 

Unfortunately, that means that sellers inevitably grin and bear the costs of a far larger quantity of expensive chargebacks than they need to.

No doubt, some quantity of disputes are to be expected. But, many chargebacks, like those stemming from true fraud and merchant error disputes, are entirely preventable. Even friendly fraud — as difficult as it is to detect or prevent — can be largely eliminated with the right tools and practices in place.

In this article, we share tactics you can follow to reduce chargebacks so that you can keep more of your hard-earned revenue in your pockets.

Start by Understanding What’s Causing Your Chargebacks

Let’s start with the obvious: chargebacks aren’t monolithic. Instead, these forced payment reversals can happen for a nearly endless number of reasons, ranging from valid reasons like third-party fraud to bogus reasons like buyer’s remorse.

Broadly speaking, there are three types of chargebacks:

To effectively reduce chargebacks, you’ll need to vary your tactics depending on the type (or types) of disputes that affect your business most severely. If you follow the wrong playbook, you could be solving a problem that doesn’t exist while ignoring a real threat that exists right in front of you.

Worse, you don’t have much room for error or experimentation, especially if you’re already dealing with a high volume of chargebacks. Visa and Mastercard both set acceptable chargeback thresholds. Exceed those, and you risk involuntary enrollment in merchant monitoring programs and incur hefty fines and penalties.

Learn more about chargeback rates

Reduce Third-Party Fraud Chargebacks

Third-party fraud chargebacks typically stem from the use of stolen credentials or account takeovers. Here, an unauthorized third party makes fraudulent purchases using a legitimate cardholder’s credit or debit card without the latter’s knowledge or consent. When the cardholder regains access to their account, they file a chargeback to reverse the charges.

Criminal fraud chargebacks are one of several valid reasons cardholders can file disputes. You can’t re-present genuine criminal fraud chargebacks; however, you can prevent virtually all instances of criminal fraud by hardening your checkout flow against bad actors who attempt to make fraudulent purchases. Prevention tactics include:

Notice that we previously said you could theoretically prevent all forms of criminal fraud. But, whether you should is another story.

Although it feels counterintuitive to tolerate criminal fraud to any extent, one dilemma that you’ll inevitably face is the tradeoff between security and friction at the transaction level.

If your checkout environment is poorly guarded, you’ll let most buyers through, both good and bad. But, if your checkout flow is weighed down by high-friction fraud prevention measures — like active liveness checks or mutli-factor authentication — you risk blocking genuine buyers, leading to false declines that could cost you far more in lost sales than in money you lose to criminal fraud itself.

One other reason to avoid being overzealous about preventing fraudulent checkouts is that true fraud usually only accounts for about 10% of the chargebacks you’ll receive. Even if you successfully eliminate this vulnerability entirely, the bulk of your chargeback problem is likely to remain unsolved.

Reduce Chargebacks From Merchant Error

I’m going to have to hurt your feelings for a moment and deliver some bad news first. If you’re receiving merchant error chargebacks, they’re 100% your responsibility.

These chargebacks happen because you made a mistake, failed to correct it, and/or failed to communicate with the cardholder. Confused, frustrated, and left with seemingly no other choice, the affected cardholder files a valid chargeback against you. And, like with third-party fraud disputes, if the cardholder’s complaint is valid, then can’t have it overturned through representment; you have to accept the chargeback.

Now, with that out of the way, here’s the good news: merchant error chargebacks are 100% preventable. And, it’s virtually free to do so.

Unlike preventing criminal fraud chargebacks, which requires an upfront investment in fraud detection tools, you don’t need to spend a bunch of money to reduce merchant error chargebacks. The most common operational errors that lead to chargebacks include:

How do you know when you’ve patched these merchant errors? Well, it’s something of a continual work in progress. That said, you’re on the right track if you have a billing descriptor that instantly jogs the customer's memory (e.g. “MYSITE.COM SHOES” instead of “LLC HOLDINGS 84”), coupled with an automated email sequence that confirms the order immediately, updates the customer when the item ships, and then notifies them upon delivery.

For subscriptions, excellence means sending a helpful reminder email 3 to 7 days before a customer is charged for a renewal. This should be complete with a hassle-free chance to cancel if they no longer want the service. Cancellations hurt, but not nearly as much as a chargeback.

Reduce Chargebacks From First-Party Misuse

The unfortunate news is that chargebacks stemming from first-party misuse (commonly called “friendly fraud” chargebacks) are simultaneously the most common type of chargeback and the most difficult kind to prevent.

The reason is that, while friendly fraud involves illegitimate chargebacks, these disputes are filed by legitimate cardholders. You have seemingly-legitimate purchases that eventually morph into friendly fraud, and which are indistinguishable from other genuine transactions at the point of sale.

It’s exceedingly difficult to keep friendly fraud chargebacks at bay via a prevention-only approach. But, the following tools may help stem some of the bleeding:

Requiring customers to manually check a box agreeing to your terms and conditions before purchasing forces the buyer to acknowledge your policies and makes it much harder for them to later claim ignorance regarding refunds or returns. It also creates a digital paper trail of evidence that you can leverage if need be.

Consistent shipping updates via email keeps customers informed and their purchases top-of-mind. These regular touchpoints reduce the likelihood that they will forget the transaction when their order (or their bill) eventually arrives.

If a customer can easily contact you to resolve an issue, they may be less likely to call their bank. Listing out your customer service contact information clearly and responding quickly to inquiries can help solve problems before they escalate into chargebacks.

While refunding money hurts, a chargeback is worse. Erring on the side of a “no-questions-asked” refund is often the most cost-effective way to neutralize a dissatisfied customer who might otherwise commit friendly fraud.

Pairing a preventive approach with chargeback deflection tools that intercept disputes before they morph into full-blown chargebacks can also be useful. These include solutions like:

The one obvious weakness of deflection tools, however, is that they intercept chargebacks but result in an uptick in refunds. Since doing so helps you avoid both chargeback fees and damage to your chargeback ratio, this is an objectively good tradeoff. That said, you’re still losing revenue…just a little less of it.

Which Chargeback Reduction Tools Do You Actually Need?

Most merchants are best served by a combination of complementary prevention tools that work in tandem to prevent criminal fraud, merchant error, and friendly fraud chargebacks simultaneously. In fact, many prevention tactics overlap and help address multiple problems at once. Communicating proactively and responsively about orders, for instance, can help reduce both merchant error and friendly fraud chargebacks.

Some eCommerce platforms, like Shopify, come with built-in services that effectively function as a form of fraud insurance. For example, merchants who enable the built-in, free-to-use Shopify Protect are automatically refunded the revenue lost to criminal fraud chargebacks, plus the chargeback fee that would otherwise be assessed.

Besides merchant error fixes and built-in chargeback prevention tools, though, most prevention methods aren’t free.

Fraud scoring tools can cost anywhere from several cents per transaction, which adds up quickly when you’re doing a high volume of business. Chargeback alert services charge a fee for each chargeback prevented. Before rushing into a purchasing decision, you’ll want to carefully weigh the cost of prevention against the immediate and longer-term costs of incurring a chargeback to make sure that you’re investing in solutions that yield a positive ROI.

When to Consider Outsourcing Chargeback Reduction

While a hands-on approach works well for lower volumes, there comes a tipping point where manual chargeback management may cost you more in time and money than outsourcing. On a high level, you know you have outgrown a DIY approach when you can no longer keep up with the evolving complexity of fraud without neglecting your core business. Specifically, it may be time to outsource chargeback reduction if you’re:

• In Danger of Exceeding Thresholds: You’re brushing up against chargeback thresholds and risk entering the Visa Acquirer Monitoring Program (VAMP) or Mastercard Excessive Chargeback Program (ECP).
• Losing Productivity: Your team spends 10+ hours a week fighting disputes rather than focusing on sales, marketing, or product development.
• Missing Alert Windows: You’re paying for chargeback alerts but don’t have the bandwidth to act on them within the 24-hour window, resulting in unnecessary chargebacks.
• Experiencing Low Win Rates: Your representment win rate is consistently below the industry average, indicating your representment packages and rebuttal letters aren’t compelling enough.
• Suffering From Root Cause Blindness: You’re fighting disputes individually, but can’t identify the underlying operational patterns causing them.

Partnering with a dedicated chargeback management firm — like the end-to-end, dual-layered solutions offered by Chargebacks911® — can help reduce chargeback fast by taking the burden off your shoulders. Beyond handling disputes, benefits of outsourcing your chargeback reduction efforts to the experts include:

• A Unified Platform: Access to a single dashboard that integrates alerts, deflection, and representment.
• 24/7 Monitoring: Automated systems that ensure no alert deadlines are missed, regardless of holidays or time zones.
• Evidence Preparation: Experts who craft data-driven representment packages and chargeback rebuttal letters tailored to specific reason codes.
• Advanced Analytics: Deep-dive reporting that helps pinpoint the root causes of disputes, allowing you to fix upstream operational errors.
• Specialized Chargeback Professionals: Trained teams that stay updated on the ever-changing rules and regulations of card networks.

Tracking Your Chargeback Reduction Progress

For best results, you’ll want to take a quantitative approach to measure how successful your chargeback reduction efforts are. Keeping tabs on several metrics at once, like the ones below, can give you greater insight into how you’re progressing:

#1  |  Chargeback Ratio

Keep a close watch on your all-important chargeback ratio. Stay well below the acceptable chargeback thresholds set by Visa and Mastercard to avoid fines and involuntary enrollment in merchant monitoring programs.

#2  |  Chargebacks by Reason Code

Categorize incoming disputes to determine if your interventions, like implementing 3-D Secure at checkout or improving your return policy, are actually helping to reduce the incidence of certain reason codes.

#3  |  Representment Win Rate

Track the percentage of disputes you win — and the percentage of representments that result in recovered revenue — to measure how effective your evidence gathering and submission process is.

#4  |  Time Spent on Chargeback Management

Log the hours your team dedicates to disputes to calculate the true operational cost of your current strategy.

Of course, data is only useful if you act on it. Schedule a monthly review to analyze these metrics, and look out for trends rather than just raw numbers.

If your win rate dips, revisit your evidence templates; if “item not received” claims spike, for example, audit your fulfillment carrier. Continuously adjusting your approach based on hard data and sound judgement is the only way to reduce chargebacks and keep your chargeback ratio healthy.

Get Professional Help Reducing Chargebacks

Combining the best practices outlined above can aid in creating a solid strategy for minimizing and managing chargebacks. They’ll also be helping enhance customer satisfaction and ensuring a smooth and secure experience for shoppers.

In the long run, though, a piecemeal strategy to reduce chargebacks won’t be effective. True fraud prevention and risk mitigation require a more comprehensive approach. This is a challenge; most merchants don’t have the kind of specialized knowledge and skills necessary to make the effort worthwhile.

Fortunately, we can help.

Chargebacks911® offers a true end-to-end technology platform that prevents more disputes, reduce chargebacks, wins more reversals, and maximizes your ROI. Contact us today for more information on improving customer service to prevent chargebacks.