If your business accepts credit and debit cards payments processed through a debit and credit card merchant account provider, you need to make sure you have some plan of chargeback mitigation in place for dealing with chargebacks. Chargebacks are triggered for several different reasons and situations. They could come from sources including:

• Criminal and Fraudulent Activities – Internal and external transactions that are not authorized by the card holder or are conducted without their knowledge. Transactions like these might involve employees charging customers more than the actual sales price or be from purchases made through online e-commerce sites.
• Customer Disputes – These transactions are where customers have not received what they perceived to be the level of service or quality of product as promised. They can also be considered “friendly fraud,” as some of your customers may dispute a charge just to try to get a refund, even though there might not by any problems with the product or service they received.
• Transactional Errors Caused by the Business – The business made an error when entering the amount to be charged to the credit or debit card or amount of ACH payment. Typically, these errors are due to key input errors, where the business accidentally entered the wrong transaction amount and, once the customer sees the transaction, requests a chargeback because it is not the right amount.

Without a plan in place for dealing with chargeback mitigation, you are not addressing the underlying causes but, rather, only the symptoms. Taking this approach could cause a change to your rating by your merchant provider and result in your being reclassified as a high-risk merchant account.

Chargeback Mitigation Through Prevention

Prevention is implementing processes and procedures to help stop chargebacks for in-person, over-the-phone, and online transactions. The key for an effective prevention plan is to identify the sources of where your chargebacks are occurring and review your current credit card processing solutions. Some questions to ask should be:

Does a particular employee seem to have a high number of chargebacks compared to other employees?

This could indicate employee fraud in certain situations, where they are overcharging customers intentionally and then pocketing the difference. In other cases, like in sales-driven environments, it could mean the employee is pushing a certain product or service to the point customers just agree in order to stop being pressured, but, afterward, change their mind, so they then dispute the charge.

The main thing for chargeback mitigation here is to review the transactions being disputed, compare amounts to actual sales prices, and then take the appropriate actions, such as employee retraining or implementing new security measures. Even with EMV chip-enabled credit card and debit card readers, your employees should still be asking customers to present the card along with a valid form of ID, especially for high sales amounts.

Are most of your chargebacks coming from e-commerce types of transactions?

Many different types of online businesses are already classified as high-risk e-commerce merchant accounts because of the type of industry, product, or service they provide. In addition, conducting business online increases the risks of chargebacks because fraudulent and criminal transactions are much more prevalent.

To reduce online chargebacks, there are several different options, some of which are available through your merchant account provider, like increasing the security of transaction payment processing gateways. You could also implement verification challenges, where a customer would have to answer specific security questions or provide certain data, like the security code on their card, in order to complete the transaction.

Are most of your chargebacks from orders placed over the telephone?

Just like e-commerce transactions, telephone sales could result in chargebacks from fraud and criminal activities. Implementing customer verification processes can be more challenging, but there are still things you can do to increase you chargeback mitigation.

If your customers already have online accounts but are calling in to place their orders, you can have them answer challenge questions associated with their customer accounts. If they are new customers, it is best to take their orders and then do verification processes on them before submitting the charges through your merchant account.

Telephone verification should be conducted by another person, not the salesperson who verifies the shipping or billing addresses of the customers, by using Google or some other online means to confirm they are real residences or businesses.

They could also check to see if the people have their phone numbers listed and compare those numbers to the ones that were provided. Last, they could call the customers back directly to have them confirm their orders, as well as provide the special security codes on their cards.

Are most of your chargebacks being caused by your own errors?

You or your employees could be triggering chargebacks from transaction errors. For instance, you sell a product or service for $29.99 and accidentally ring up the transaction as $299.99, and it is approved. Obviously, the customer is going to dispute this once they discover they were greatly overcharged.

On the other hand, you ring the sale up as $2.99 instead of $29.99. While your customer benefits in this case, you may be tempted to manually enter and process the difference, which could trigger a chargeback from the customer because there would be two different transactions for different amounts.

The best thing to do to reduce human errors is to verify the sales amount is accurate and correct before processing the credit or debit card payment. You should also be balancing sales transactions daily to discover discrepancies between sales amounts and payments collected.

If you discover a transactional error, where you either overcharged or undercharged the customer, you should attempt to contact the person if you have contact information. Ask the customer to return to your business, so you can have access to the physical card while making corrections to the original sales transaction. For online or phone sales, inform the customer of the mistake and let them know how you are going to correct it.

Chargeback Mitigation Through Re-Presentment

While preventative measures can help lower the risks associated with fraudulent and criminal transactions, as well as business-generated errors, it cannot address chargebacks initiated by your customers that fall into the “friendly fraud” category. However, you should remain diligent throughout the chargeback mitigation and processing.

First, customers may contact their banks to question the transactions. The banks will send copies of request notification to confirm basic transaction documentation, either directly to the businesses or through the businesses’ credit card processing merchant account providers.

Initially, this does not mean a chargeback will be coming. Sometimes customers just do not remember making a purchase, but, once their bank provides them with the basic documentation you provided, then they remember it, so it goes no further.

If not, then the next step that will occur is the customers will fill out and submit chargeback request forms through their banks. Their banks review their requests to determine if there are indeed grounds valid enough to support chargebacks. If so, then they will refund the customers’ money to their accounts immediately, pending the outcomes of the investigations.

The more types of documentation you can provide, the better. After receiving this information, the issuing bank may reverse the chargeback in your favor. However, at this point, the customer can still challenge the reversal and request a second chargeback, which is deducted again from your account pending the outcome.

From there, you would need to respond and submit the supporting documentation a second time or any additional documentation that would further support the validity of the transaction. Even at this point, if the issuing bank says the charge will stand, the customer can press for an arbitration hearing.

Arbitration hearings can be costly for business owners, so you need to decide at this point whether it is worth pressing the matter. The business is responsible for all costs incurred during this process, as well as a minimum $500 fee if the arbitrator rules in favor of the customer.

By practicing diligence throughout re-presentment, you can reduce the number of “friendly fraud” transactions. In most cases, after a customer disputes the charge a first time, he or she tends to let it go after you provide proof that the transaction was valid.

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