It is not an uncommon occurrence if you have disputed a charge with your credit card company. Such episodes are quite a common in this age of digital transactions.
Thankfully, the card issuer generally takes your word against the merchant and credits the money back to your account first and then goes about the investigation.
It is now the onus of the merchant to prove that it was not in the wrong.
Millions of consumers have wielded this tool in their favor. Of course they have to undergo the dispute process, which they willingly endure.
According to reports, Visa Inc. processed a little over $2 trillion worth of transactions in the year 2012 and card holders disputed approximately 0.04% of this amount. This adds up to a hefty $ 800 million, not a mean amount by any standards.
Such losses surely are a dent in an e-commerce business.
But let us first get at some fundamentals.
In this age of digital transactions, banks operate as issuers of credit cards to consumers and act as issuing banks. These banks issue cards of a certain type, Visa and MasterCard being the most common.
Such transactions are subject to interchange rates, which vary due to several factors such as, the type of card, the merchant, and whether the card was present at the time of transaction.
The interchange rates probably vary because the issuing bank wants to be compensated for the risks of chargebacks.
So what is a charge back?
A chargeback happens when a customer disputes a charge successfully. When consumers complain about the products or services sold in e-commerce transactions, there are good chances that the money will be taken back from the merchants’ account.
While it is true that transactions are very safe from the point of view of both the parties i.e. the issuing banks and acquirer banks when the credit card holder is physically present during the transactions, other scenarios can be riskier.
For example, transactions done over phone and the internet and if the value of transaction is large tend to generate complaints.
There is no any doubt that charge back hurts e-commerce.
A business manager has to deal with charge back all the time, and it is a thankless undertaking.
Typically charge back management consists of two parts.
1. Charge back prevention
e-commerce merchants can minimize charge backs at the time of sale and achieve maximum customer satisfaction. As mentioned earlier most risks are contained in mail order/ telephone order and internet transactions.
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Here are a few things they can do to preempt charge backs.
- Create a negative database – Maintain a database of customers that are identified as high-risk. You can block these cards and disallow future transactions.
- By verifying addresses – Businesses can take assistance of AVS or Address Verification Service to verify a card holder’s address before completing a sale.
- By knowing the customer – Companies can reduce charge backs by knowing their customers. This can be ensured by speaking with the cardholder to verify the order.
2. Avoid duplicate transactions
Businesses must avoid duplicate transactions to avoid chargebacks. This can be done by a combination of various procedures including processing one transaction at a time at the point of sale, reconciling deposits at the end of the day, and by creating separate invoices.
3. Managing “merchandize not received” situations
In an e-commerce hosting transaction, if the card holder does not receive the goods or services, charge back can occur. Ideally goods and services must be delivered before charging the customer. Additionally, it is a good practice to obtain signed proof of delivery for all goods and services sold.
4. Handling quality related disputes
It is a different cup of tea altogether when customers challenge the quality or quantity of merchandize delivered to them.
The best bet in such scenarios to resolve the issue directly with the customers. Some of the things that a business can do in e-commerce sales are:
- Have a customer friendly replacement or refund policy in place
- Ensuring good packing to avoid damage or loss during transit
Charge backs are continuing to be a big issue to e-commerce merchants.
It is a difficult task, no doubt to deal with this problem. But by adopting multifaceted strategies, the loss in revenue due to charge backs can be greatly minimized.