{"id":15433,"date":"2022-11-11T12:45:00","date_gmt":"2022-11-11T09:45:00","guid":{"rendered":"https:\/\/www.x-cart.com\/?p=15433"},"modified":"2024-11-25T11:30:25","modified_gmt":"2024-11-25T08:30:25","slug":"how-to-prevent-chargebacks-on-your-online-st","status":"publish","type":"post","link":"https:\/\/www.x-cart.com\/blog\/chargebacks.html","title":{"rendered":"How to Prevent Chargebacks on Your Online Store: 9 Practical Tips to Limit Buyer Disputes"},"content":{"rendered":"\n

As an online seller, you know about the advantages and challenges of accepting digital payments all too well. Online payment processing allows for an expanded audience reach, flexible checkout options<\/a>, and an optimized customer journey. But, with that, it also incurs some risks related to buyer disputes.  <\/p>\n\n\n\n

As long as your number of chargebacks is low, you may view them as an occasional annoyance. However, with eCommerce fraud<\/a> on the upswing, chargebacks can be quite an issue for an online entrepreneur spelling significant financial losses. This is why limiting the number of chargebacks you receive should be  your top priority.  <\/p>\n\n\n\n

This article covers the best practices that merchants should apply to reduce chargebacks on their online stores. But before we dive into the main strategies to enhance your eCommerce chargeback management system, let\u2019s break down what a chargeback is and how a dispute process works for an online merchant.<\/p>\n\n\n\n

Let us fill you in one step at a time.<\/p>\n\n\n

\n What Is a Chargeback? <\/h2>\n\n\n\n

A chargeback is a forced transaction reversal initiated by an issuing bank at a cardholder’s request. Also referred to as a payment dispute, it shares some similarities with a refund. However, these two concepts are not interchangeable.<\/p>\n\n\n

\n\n

A Refund vs. a Chargeback <\/strong><\/p>\n\n\n\n

With a refund, shoppers get their money back directly from sellers and are supposed to return a purchased item. <\/p>\n\n\n\n

That\u2019s not the case with a buyer dispute, where a customer bypasses a merchant to turn to their bank or credit card company for a charge reversal. Unlike refunds, chargebacks cost merchants much more than just the value of the purchase. Also, sellers suffer costly bank fees, payment processing expenses, operating and marketing costs, and the time and effort spent to fight a buyer dispute. <\/p>\n\n\n\n

If a customer is unsatisfied with a purchase, issuing a refund is always the best way to retain trusted relationships with your customer and avoid costly chargeback-related bank fees.<\/p>\n\n<\/div>\n\n\n

As a consumer-protection mechanism against billing errors and fraudulent transactions, a chargeback gives customers security and peace of mind while shopping online. But for eCommerce businesses, multiple payment disputes pose severe risks to the overall online store performance.<\/p>\n\n\n

\n How Much of a Threat Are Chargebacks to Merchants? <\/h3>\n\n\n\n

Some merchants compare chargebacks to sharks in clear waters. And just like a shark bites, the cost of chargebacks can take you out without warning. With no intention to scare you, we’ll give you a complete picture of sale reversal aftereffects and explain why they can be an existential threat to your eCommerce business.<\/p>\n\n\n

\n 1. Significant Financial Losses <\/h4>\n\n\n\n

According to ChargebackGurus<\/a>, each buyer-disputed transaction can cost merchants over $200 for every $100 purchase<\/strong>. The revenue loss includes the value of merchandise, ancillary non-refundable expenses, plus hefty chargeback fees that vary between $20 and $100, depending on the merchant’s acquirer.<\/p>\n\n\n \n \n \n \n \n \n \n \n \n
Transaction value<\/td> \n Right column title <\/td>\n $100<\/td> <\/tr>\n
Transaction fee (4%)<\/td> \n Right column title <\/td>\n $4<\/td> <\/tr>\n
Product acquisition costs (23%)<\/td> \n Right column title <\/td>\n $23<\/td> <\/tr>\n
Marketing and advertising costs (35%)<\/td> \n Right column title <\/td>\n $35<\/td> <\/tr>\n
Operational costs (including fulfillment, storage, and logistics) (20%)<\/td> \n Right column title <\/td>\n $20<\/td> <\/tr>\n
Chargeback fee ($25)<\/td> \n Right column title <\/td>\n $25<\/td> <\/tr>\n
Total:\u00a0<\/em><\/strong><\/td> \n Right column title <\/td>\n $207<\/em><\/strong><\/td> <\/tr>\n <\/tbody>\n <\/table>\n \n\n\n

With a sale reversal, all those related expenses are no longer “a cost of doing business”, but instead become revenue leakage that can sink your business.<\/p>\n\n\n

\n 2. Elevated Chargeback Rate <\/h4>\n\n\n\n

A chargeback rate (aka chargeback ratio) is the metric that compares a seller’s total sales against the number of customer disputes the business faced during a given period. If your eCommerce store has a high chargeback ratio that exceeds your card network’s threshold, the payment processor can label your business as risky. <\/p>\n\n\n\n

The consequences of having a “high-risk” merchant account include higher transaction rates, limits to monthly processing volume, and a hold of reserve funds. To make matters worse, banks can terminate the account entirely leaving the merchant no choice but create a new legal entity and restart their business.    <\/p>\n\n\n\n

The good news is that the overall chargeback-to-transaction ratio currently shows a year-over-year decrease. However, as of 2021, the average chargeback-to-transaction ratio was 1.52 %,<\/a> which is still above most card networks’ threshold of 1%.<\/p>\n\n\n

\n
\n \"Chargeback-to-transaction<\/picture>
\n Source: MiDiGATOR<\/em><\/a>\u00a0<\/em> <\/figcaption>\n <\/figure>\n <\/div>\n \n\n

\n 3. Reputational Damage <\/h4>\n\n\n\n

Along with the harmed relationships with financial partners, chargebacks can seriously hurt customer loyalty. The public eventually finds out if a merchant has a chargeback problem through word of mouth or review forums. And if you have a high volume of chargebacks, shoppers will think twice before making a purchase. And if you don’t want to take my word for it, Qualtrics<\/a> has pinned down some review statistics showing that 94% of respondents<\/strong> admitted an online review had convinced them to avoid a business.<\/p>\n\n\n\n

In sum:<\/strong> From all this, it follows that the risks for eCommerce businesses are high, and to avoid severe ramifications, merchants should keep their chargeback rates in check, diligently limiting the number of buyer disputes.<\/p>\n\n\n

\n Most Common Chargeback Reasons <\/h2>\n\n\n\n

A clear understanding of the common reasons behind filing a chargeback helps sellers understand how to spot and eliminate their vulnerabilities, consistently reducing the number of sales reversals.<\/p>\n\n\n\n

Here are some insights into the most common chargeback causes:<\/p>\n\n\n

\n Third-Party Fraud<\/strong> <\/h3>\n\n\n\n

The chargeback occurs when customers discover an unauthorized or suspicious transaction on their account statement or a credit card bill and ask a card issuer to reverse the charge. The possible causes are a payment card physical theft or a cyber-attack<\/a> when hackers steal customers’ credit card data or use their accounts to pay for purchases.<\/p>\n\n\n

\n Merchant Error<\/strong> <\/h3>\n\n\n\n

Customers can also dispute a charge if they are unsatisfied with the product. In this case, the main reasons for a chargeback can be: <\/p>\n\n\n\n