Ecommerce business owners have a lot on their plate. With common problems to deal with ranging from inventory management, shipping logistics, marketing and customer service to typical overhead, there’s one issue online businesses as a whole can’t seem to solve – chargebacks. According to a report from National Retail Federation, chargebacks and customer disputes cost retailers $428 billion in returned merchandise in 2020. That translates to about 10.6% of the total U.S. retail sales for the year and a huge pain for a business to rectify.
The good news is that businesses can combat (or prevent) chargebacks by taking specific steps and using technology-assisted services. But let’s first understand what a chargeback is and why it even exists in the first place.
What is a chargeback?
A chargeback is defined as a reversal of funds demanded by a credit card company when a cardholder disputes a charge on their account due to reasons like fraud, dissatisfaction with a product or service, or simple logistical mistakes.
Why do chargebacks exist?
Chargebacks exist to protect the consumer from fraudulent merchants who don’t make good on promises when purchases are made. These claims are also often leveraged when customers are dissatisfied with the product or service and feel like customer service won’t resolve the issue for them, so they go straight to the source – the bank or card provider.
Requests for a reversal of funds also occur with credit card fraud – when someone makes a purchase unbeknownst to the cardholder. In these cases, the merchant holds no blame but must still foot the bill along with additional fees.
A successful chargeback costs more than just the refund
From the perspective of the cardholder who initiated the chargeback, it just looks like a refund. But the situation is a lot more costly for the business or merchant. Many variables to this extra cost may include the following:
- Fulfillment, shipping and handling costs for the initial delivery will still need to be paid.
- Fees charged by the credit card provider may come into play. Some provide a flat fee, while some charge a percentage of the total refund. (On average, fees can range from $20 to $100 and will increase if the business is prone to frequent disputes.)
- Representation fees may be incurred if a business chooses to dispute the chargeback.
- In some cases, a business can be fined if it has a high chargeback rate or if it violates terms in the merchant agreement.
How do businesses prevent or decrease the number of chargebacks?
- Reduce the chance of a chargeback by preventing misunderstandings. Clearly communicate the terms and conditions when customers make a purchase.
- Train the Customer Service team to better handle disputes internally instead of getting a bank or card provider involved.
- Use services that provide buyer and seller protection with a shopping guarantee, identity theft protection and a purchase guarantee.
- Prevent fraud by requiring additional authentication for online purchases.
- Make sure the charge is easily recognizable so customers know exactly what purchase they’re seeing in their credit card statement.
Chargebacks will remain prevalent in the age of ecommerce, but businesses can mitigate the consequences of unwanted fees as well as protect the reputation of ecommerce retail businesses by taking the suggested steps above. Norton Shopping Guarantee can give customers an easy way to report issues in a way that benefits both the business and its customers.