Posted on June 18, 2024

Winning the Chargeback Battle: A Guide to Handle Them Like a Pro

By: iPay

As a business, nothing disrupts operations and cuts into profits like chargebacks, especially if you are in the e-commerce sector. Chargebacks, also referred to as customer disputes, are designed to protect consumers against fraud.

Here’s what businesses need to know about chargebacks and how to handle them effectively.

What Are Chargebacks?

A chargeback occurs when a customer disputes a transaction and asks their bank or credit card issuer to reverse it. Essentially, it's a way for consumers to get their money back if they believe there has been an error or fraud in their purchase.

Customers might request a chargeback for several reasons, including the following:

•  They didn't receive the product or service.
• The product or service wasn't as described.
• There were issues with shipping, like damage or loss.
• They were billed twice.
• Recurring charges weren't canceled when requested.
• Technical errors.
• They suspect fraud.

Types of Chargebacks

•  Fraudulent Chargebacks: Unauthorized transactions.
• Service-Related Chargebacks: Occurs when the product or service does not meet expectations.
• Technical Chargebacks: Result from processing errors or duplicate transactions.
• Friendly Fraud: When customers dispute legitimate transactions, often due to forgetfulness or dissatisfaction.

Who takes the hit? In online transactions, businesses usually bear the liability but in-person transactions shift liability away if genuine fraud is involved.

Financial Impact of Chargebacks

Chargebacks can pack a financial punch, with some businesses losing up to 1% of their revenue due to friendly fraud and other unfair chargebacks.

This may lead to:

•  Loss of revenue. Studies indicate that the total cost of chargeback fraud can be 2.5 times the value of the disputed transaction.
• Reputational consequences. Negative impact on how financial institutions and card issuers view your business.

Is a Chargeback Reversible?

According to Eric Mulu, our Operations Lead, “It's all about having your ducks in a row from the get-go. Having internal processes whenever a business is receiving an order or requested to provide a service. Think clear records, a dispute management policy and having terms and conditions that customers agree to upon purchase. Oh, and don't forget about confirming delivery— does a business have a mechanism in place to confirm receipt of goods?”

So, according to Eric, “A charge back can be fought if there are proper systems and a proactive approach that covers them.” Therefore, when a chargeback is issued, providing all the supporting documentation to prove the transaction was made without error and that the goods or services offered were satisfactory is essential. Though, the final decision rests with the card issuer.

How Can I Protect My Business Against Chargebacks?

It is essential to take pre-emptive measures to provide an excellent purchasing experience that will foster customer satisfaction. Review credit card policies, have clear product descriptions, and use fraud detection tools. Compliance with security standards and educating customers on chargeback implications also help.

Always keep in mind, as long as you sell online, you will deal with disputes, many of which may be fraudulent.

As a Payments Service Provider, we play a critical role in the chargeback process.

Here's a straightforward explanation of how chargebacks happen, along with insights from our Head of Compliance, Mary Muchiri.

 

Step 1: Initiation

"The cardholder contacts their credit card issuer or bank (issuing bank) to dispute a transaction they believe in incorrect or unauthorised," Mary explains.

Step 2: Investigation

Once the dispute is initiated, the bank reviews the transaction details. They look at evidence from both the customer and the business.

"During this investigation, the bank may temporarily credit the disputed amount to the cardholder's account during the investigation," she notes.

Step 3: Business Notification

If a chargeback is initiated, the business will be notified by iPay. This notification gives the business a chance to provide evidence that the transaction was valid. This evidence could include receipts, proof of delivery and any communication with the customer.

Step 4: Resolution

"Based on the evidence, the issuing bank makes a decision to either reverse the chargeback in favour of the merchant (business) or uphold it in favour of the cardholder (customer). If the chargeback is upheld, the merchant is debited for the transaction amount, along with any associated fees," Mary explains.

Step 5: Consequences

For customers, winning a chargeback means they get their money back. For businesses, losing a chargeback means financial losses and possibly extra fees. can even lead to higher processing fees or losing the ability to process payments with iPay.

"For merchants, chargebacks can result in financial losses, additional fees and potential damage to their reputation,” she warns. It is important to note that too many chargebacks can lead to higher processing fees or even the termination of a merchant’s account with iPay.

Conclusion

Our take is to be proactive and take measures to help reduce the number of chargebacks. As your Payments Service Provider, we are here to support you through the chargeback process, ensuring you have the knowledge to handle disputes efficiently.

Get Started with us today!

• Email: [email protected]
• Phone: +254-791-444-111 / +254-734-441-111

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