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What is a Chargeback?

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What is a Chargeback?

Goods you paid for but didn’t receive? A nightmare for consumers. An unresponsive merchant who won’t answer emails or pick up the phone, and you are simply lost in limbo about when (or if) you’ll receive what your hard earned money paid for.  

For consumers, Chargebacks can be a very effective safety net and peace of mind tool that can keep them protected from unscrupulous businesses. 

However, that proverbial coin can very easily be flipped. Seemingly unjustified Chargebacks can potentially cost innocent businesses a significant figure each year. Leaving a business owner like yourself saddled with the various fees and costs associated with Chargebacks. 

Here, we go over the fundamentals of Chargebacks, who and what they protect and how businesses like yours can minimise their impact on your finances. 

 

 

Brief History of Chargebacks

Payment industry thought leaders typically recognise The Fair Credit Billing Act of 1974 as the bonafide invention of chargebacks. Their purpose was and has maintained to be the consumer’s “last-ditch” fallback option to reclaim funds they believe were not justifiably taken by merchants. So no matter what, consumers will always have their legislative safety net against businesses who might be out to defraud an unaware customer. ​

 

Who Do Chargebacks Protect?

In short, chargebacks have been designed to protect the best interests of consumers and customers. This is the fundamental idea behind their conception, and the likelihood is that it will never deviate from this course. 

Ultimately, this is nothing but positive. As consumers with more peace of mind, will likely be more willing to part ways with their money in exchange for a product or service. 

However, this has given way to a particular kind of fraud which is commonly referred to as “Friendly Fraud”.

“Friendly Fraud” occurs when a customer files a chargeback against a business for the incorrect reasons. For example, if they see the return process as too cumbersome they may simply invoke a chargeback in order to avoid said process. Although, sometimes “Friendly Fraud” can simply be because the customer had forgotten they made the purchase. 

So, although this added protection is brilliant for consumers when legitimately required, it does open up innocent businesses to a notable amount of “Cyber Shoplifting”

 

How to Effectively Reduce Chargebacks

As a business owner, you will likely want to minimise “Cyber Shoplifting” in the same way you want to minimise regular shoplifting. However, unlike physical shoplifting, you can’t put physical barriers and deterrents in place to minimise these “Cyber Shoplifting” scenarios. 

With a large number of Chargebacks occurring over refund disputes, the first port of call should be to take a look at your refund policy. Is it in fact a bit bulky or convoluted? By refining and streamlining your return policy, you will be greatly reducing your risk of being affected by chargebacks. 

As well as refining your refund and return policy, making it more prominent and much easier to find across your digital presences will do endless amounts to ensure your customers are making their returns in the way that benefits you the most. 

According to NN Group, world leaders in user experience research, the average user will leave a webpage after approximately 10 to 20 second. This means that you have this amount of time from them landing on your web to ensure they can find your returns policy in order to potentially reduce chargebacks. 

One of the best ways of doing this is to include a returns link in your navigation bar. This is likely going to be where your user’s eyes first land, so it’s important to present them the information that they want with as little disruption as possible.

 

Conclusion

In respect of the consumer security, chargebacks were and still continue to be a tremendous innovation in the realm of modern finances. However, they aren’t perfect. Consumers can use them inappropriately, intentionally or accidentally. 

All in all, it can be difficult for businesses to win in the case of a chargeback as their sole purpose means they are weighted in favour of the consumer. Therefore the best method of defense against them is making every effort to minimise them to begin with. 

By reading and implementing the advice above, you’ll be sure to prevent chargebacks from eating into your hard earned margins