Information on Disputes & Chargebacks, why the occur and what you need to do.
Disputed Transactions & Chargebacks
will take about 10 minutes to read…..
A chargeback occurs when you lose a disputed transaction. A disputed transaction occurs when the cardholder contacts their provider to let them know that something is wrong with a particular transaction that was processed. You must keep in mind that if there are too many disputes against your company, your bank may and can terminate your facility. It is essential to respond to and address each dispute you receive in a timely and professional manner.
A disputed transaction can be for a few reasons. We look at some of these below:
- Goods or services not provided/received
- The transaction was duplicated (charged twice – either through a glitch in the system or because the customer double-clicked, or did not wait for the transaction to complete)
- The goods are not as described / or are defective.
- The purchaser doesn’t recognise the transaction – more information is needed.
- A fraudulent transaction
In general, disputed transactions can be initiated up to 6 months from when the transaction took place. In my experience, I have seen a dispute come through even 12 months down the track. I have also found that when dealing with disputes, I have won more when dealing with the bank than with any other financial provider.
Once you receive a dispute (usually in the form of a letter), it is best to address it immediately and respond to the authority who has sent it to you, even if you think you have resolved it with the customer.
Fees are generally charged for disputes that go against you and end up in a chargeback. Our fee from the bank for every dispute we lost was $25.
Goods or services not provided / received
Provide a tracking number and any documentation to prove that the item was delivered. It may just be a case of delayed delivery, and the customer couldn’t be bothered withdrawing their dispute. It always pays to respond professionally, with facts and without emotion.
Duplicate Transaction
This could be as simple as a glitch in your system that has created a double charge, or if you can check your logs on the back end of your website, you may see that the customer has attempted to pay by clicking multiple times on the “pay now” button. Whatever the case, try and resolve this calmly. Providing a refund is generally the best practice, and forwarding the receipt to the bank for their review will resolve and close the case.
The goods are not as described or are defective
This part right here, in most cases, can be avoided. You would want to avoid disputes and chargebacks as much as possible. They are costly, create frustration and put you at risk with your financial provider.
If a customer is not happy with their purchase – allow them to return, refund them and move on. I speak more about this in managing your customers.
Don’t allow it to escalate to the point of a dispute. It is senseless. Other than a dispute, you will most likely get a bad review. Get rid of problems quickly and efficiently and move on.
If you strongly believe that the customer is merely taking advantage and falsely declaring the product is defective or not as described in order to seek a full refund, respond to the dispute with facts and evidence, and let the financial institution know that the customer’s declaration is false. You must be able to prove this, however.
I once had a customer who raised a dispute under this reasoning, and I was blown away that we had only just posted her product, and she had still not received it!
The customer was seeking a full refund due to a delay in postage (due to Covid). Given the flexibility that banks and financial institutions were giving businesses at that time, the customer figured their best bet was to use a different excuse.
Therefore, it was justified that I respond to the bank and let them know of the correct version of events. Otherwise, the customer would get the product and the refund!
The purchaser doesn’t recognise the transaction – more information is needed
There will be times when the bank will request more information about a particular transaction. This is because the owner of the card does not recognise the transaction. This most commonly happens when they see a different name on their statement to their purchased product. For example, they bought two bags of coffee beans and paid with a credit card, and the word ‘Global estates’ appears as the company name taking the funds. There is no connection between the two, so they are querying this before they dispute the transaction. As part of selecting and registering your domain name, you should ideally have a connection to your name and what you are selling.
If you get too many of these sorts of disputes, you will probably need to consider a name change somehow. Perhaps a “trading as” name would be sufficient in resolving this problem so that the customer sees a relevant and legitimate name for their transaction. Remember, you don’t want to be receiving too many disputes as the banks start to raise red flags against your company.
A fraudulent transaction
These are the most difficult to tackle and the ones I call the “lost causes”. Someone may use this as an excuse to try and retrieve their money and keep the goods, but in most cases, this is simply an unauthorised transaction. When you see the unauthorised transactions under this category, you will start to see a pattern. It will become easier in the future to recognise them and prevent them (or at least not send out any goods without verifying them first). I speak more about how to do this under fraud tips below.
In general, a fraudulent transaction is when someone has come onto your online store and made a purchase using a credit card that is not theirs. Generally, they have stolen credit cards or credit card information. In this case, the credit card owner creates the dispute with their card provider, and in turn, they contact your bank where you hold your merchant facility. In recent times, the bank no longer allows you to respond to this dispute. They inform you that this is the case, and they automatically take funds out of your account and charge you a fee. It’s one of the most frustrating experiences you will ever come across. It’s like you’re the one that pays the price for everyone. Don’t dwell too much on it, though. It’s a part of business, and you need to move on.
You can take some steps to minimise your risk of fraud, and an excellent place to start would be consulting your merchant facility or third-party gateway. But you also must be mindful that the solutions they give you are practicable and don’t hurt your sales. Keep in mind that their interest is to eliminate fraud at any cost, whereas your interest is to minimise it while operating a successful business. You should be able to find a median ground.
For example, your financial provider may tell you to automatically reject all transactions where the billing address is not the same as the shipping address, and whilst this may be one of the features of fraud in some cases, it may hurt your sales during festive periods such as Christmas, where the purchaser buys and sends directly to the recipient.
Other indicators they use are one payment attempt or payment made only with one credit card. So, if you are to reject transactions where the buyer accidentally typed in an incorrect expiry date or digit, you would flag this as fraud; or if they switched from their Visa card to their MasterCard where they had more funds, this would also be flagged as fraud. These are measures that I would never consider implementing as they would negatively affect my sales and frustrate genuine customers. My statistics showed that legitimate customers get the card transaction right within three attempts. Having this sort of knowledge at the back end of your system is crucial when looking at sensible options and making informed decisions. Therefore, it was not difficult to decide to block any user or any card attempting to transact on their fourth attempt.
It would help if you weighed up all options before making drastic moves that could impact your business.
In time and through experience, you will be able to start recognising the signs of fraud. Over the years, I became an expert as the patterns and behaviour were similar. Over time they can present differently as these ruthless operators think of more creative ways, but you will get the feel of things once a few disputes and chargebacks come through and you study the information.
I give you a rundown of the three fraud actions to take when I became suspicious of a fraudulent transaction.
I also show you some tips on detecting fraudulent orders and tell you which one of these actions I would apply under which circumstance.
Finally a look at the different types of fraud out there.
It is important to know and understand what type of fraud is out there so you can mitigate it or reduce the risk.
Part of good strategic management in business is assessing your risks so that you are able to make informed decisions on what you intend to do about them. Good business strategies form one of the most important steps in running and maintaining a successful business.
The 5 basic step guide was an integral part of my success. In fact, it is exactly how I was able to run a successful business.
