What are Chargebacks in SaaS & eCommerce?

Any company that sells products or services online must manage chargebacks. A high number of chargebacks may damage a company’s bottom line and reputation among credit card merchants and processors. But first, let’s define what chargebacks are.

What are Chargebacks?

A Chargeback is a dispute that initiates the cardholder against a merchant for the alleged unauthorized use of their credit charge.

 The majority of businesses in the world rely on credit cards to process their transactions and provide customers with an inexpensive and convenient method of payment. However, most people are unaware that they have the right to file a chargeback with their issuing bank if they believe that a transaction was in error or fraudulent.

You can carry out a chargeback as long as it is within sixty days of the purchase date. The issuing bank then makes a decision based on the facts and circumstances provided by both parties. If they rule in favor of the customer, there will be a refund and they may cancel future payments.

Reasons for Chargebacks

Chargebacks can happen for many reasons, including faulty items and fraudulent transactions. Understanding why chargebacks occur might assist you in taking efforts to reduce them. The following are some of the most common reasons why customers may submit chargebacks against your website’s purchases.

Product or Services

  • Items that were not sent or were shipped with defects

 If customers do not receive the products they ordered, they will typically dispute the transaction. As a result, it’s critical to preserve shipping receipts and track the items you ship. This can assist you in the event of a dispute over products that did not get to the right destination.

Technical Problems

  • Processing order twice

There is a chance that a system fault will result in the customer’s credit card being charged twice. In the case of an online transaction, a duplicate charge may occur if the person presses the PAY button twice.

  • Error due to human error

If an accountant processes credit cards manually, there’s a risk he’ll make a mistake. You should avoid manual processing.

Problems with Credit Card

  • The credit card or account number is invalid

 Make sure your system is set to refuse any credit cards that are expired or invalid. If the system cannot identify a legitimate account number for the credit card that was used, a chargeback may happen.

  • Unauthorized e-mail or phone transactions

Customers may refuse making a purchase over the phone or by mail. If you accept phone orders, make sure you gather as much information from the customer as possible. In particular, request the customer’s address and the payment card’s CVV2.

Protect Your SaaS or Ecommerce against the Threat of Chargebacks

While chargebacks are inconvenient and can reduce company profitability, they are typically a tiny fraction of overall transactions. Furthermore, now that you understand why chargeback transfers occur, you can better defend your business from them.

The following are some recommendations to help you avoid chargebacks.

Credit Card Security

  • Verify the address, customer information, and phone number

You have to do this with the bank that issued the credit card. Use the fraud services provided by many banks, such as CVV2 and AVS (Address Verification Services). You should also implement stricter credit card verification procedures for transactions originating in countries famous for credit card fraud. Orders from the Middle East, Asia, and much of Africa are generally high risk operations.

  • Install Fraud Tracking Mechanism

Install fraud tracking mechanism to create a system which can prevent fraudulent transaction and chargeback from happening.

Products and Services

  • Make sure your products/services meet the customers’ expectation

Chargebacks are sometimes started not because of unauthorized credit card use, but because the products or services purchased were unsatisfactory or did not match the customer’s expectations. Make sure you deliver value to your customers and that you make clear what they may expect when they make a purchase. Have a refund policy page on your website that outlines when customers can dispute charges for items or services you offer.

  • Do not accept a credit card that has expired

Before shipping a customer’s order, make sure the credit card provided is still valid. Orders paid by credit card are generally required to be authorized by the account’s owner. However, authorization isn’t a guarantee that an order will be accepted.

Business name

  • Use a DBA (Doing Business As) name that your customers will recognize.

Remember that your buyer may be familiar with your product brand but may be unfamiliar with the company behind it. It is your job to ensure that your customers understand credit card charges.

Changing the way the charge appear on Customer’s Credit Card Statement could reduce chargeback rates.

  • Customers’ billing statements should include your phone number.

Customers will be able to contact you directly if they do not understand what they are being charged for. Chargebacks will reduce as a result of this.

Decreasing Chargebacks

Take actions to guarantee clients understand what they are being charged for and what to expect to keep your chargeback rate to a bare minimum. Keep your services, products, and fees as transparent as possible. Your website should specify the fees that buyers will incur, how long they should anticipate a product to arrive, any guarantees or warranties on the item, shopping refunds or return policies, and so on.

Other than that, be creative and analyze customer behavior. If there has been an increase in chargebacks within a specific period, your product or service may be defective.

You can avoid chargebacks by closely tracking data from customers. If you own a SaaS company, check your customers’ use and reach out to them through email or phone if they are not using your product.

Radix is a tool for tracking and analyzing your SaaS or eCommerce business. Creating a free account and linking your data to our ultra-safe data revenue platform takes less than 5 minutes.

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Luis Cordero Schiffmann
Luis Cordero Schiffmann
Digital Marketing Strategist & Web3 Passionate MBA with expertise in Science, Technology, and Innovation. I'm a big fan of the crypto revolution, the internet and business.