How can retailers reduce chargeback costs?
Chargebacks occur when a credit card provider requires a retailer to make good on the loss of a fraudulent or disputed transaction. With the rising popularity of online retail, they are becoming an increasingly commonplace expense for retailers.
But what strategies can retailers employ to reduce losses?
According to Monica Eaton-Cardone, chief information officer of chargeback specialist Global Risk Technologies, applying best practice reduces risks but retailers should not just accept chargebacks as a cost of doing business.
She says: “Chargebacks derive from several sources including consumer or bank error, merchant error and criminal intent through ‘friendly fraud’.”
Perhaps the most damaging chargeback, friendly fraud occurs when consumers dispute a genuine transaction, falsely claiming not to have received an item.
A worrying 86% of these claims are taken up directly with banks, meaning the first the retailer knows of the problem is when it is hit with a chargeback. In a high percentage of these cases the card issuer rules in favour of the consumer, leaving the retailer to cover the cost. But increasing prices to compensate for this loss can threaten future sales.
“Preparing best practice in advance can reduce the risk of chargebacks happening, while ensuring that when they do occur, retailers take decisive steps to minimise their loss,” says Eaton-Cardone.
To avoid the most frequent pitfalls, retailers should ensure a good level of customer service, offer out-of-office hours, implement reliable systems, deploy fraud detection technology, fight illegitimate chargebacks and ensure a trustworthy delivery service.
“Chargebacks needn’t be accepted as a cost of doing business,” says Eaton-Cardone. “Education is key in helping retailers understand what to do when payments are returned so they can implement strategies to fight chargeback threats successfully.”