Best Practices to Safeguard Your E-commerce Business from Chargebacks

E-commerce is a profitable yet complex business domain because there are no direct interactions between buyers and sellers. Besides stiff competition and technical complexities, chargebacks are a significant challenge for e-commerce businesses. According to a global survey of online merchants in 2022, 2.8% of online orders among mid-market companies resulted in chargebacks. 

Although it sounds like a small percentage, the actual number and amount of chargebacks can be huge. They occur when a buyer disputes a legitimate transaction with the card issuer or bank to get a refund from the retailer without returning the merchandise. The actual problem is that every dollar of such fraudulent transactions costs a business $ 3.75, making it a concern for online sellers. 

Over time, chargebacks can result in hefty financial losses and potential reputational damage to the seller. E-commerce sellers should implement effective measures to prevent and manage chargebacks for the long-term success of their businesses.

In this article, we will explain the best practices to fortify your defenses against chargebacks. 

Write Clear and Detailed Product Descriptions

E-commerce sales in the US hit a new high of 7.8% in the third quarter of 2023. Despite this incredible growth, the industry struggles with the inability to stay ahead of customer expectations. Gaps continue to exist as customers complain about receiving products that do not match their expectations. Most of them result in chargebacks.

The probable reason is that buyers do not have a chance to see and experience products in person. As a seller, you can prevent this by offering clear, detailed, and accurate descriptions that draw a vivid picture of the product. Provide relevant details such as size, color, material, and dimensions. Also, include high-quality images from multiple angles to drive informed purchasing decisions, minimizing the likelihood of disputes. 

Ensure Transparent Shipping and Return Policies

According to Shopify’s trends report for 2023, loyal online buyers are worth 22 times more to businesses than new ones. However, you need to earn their trust to convert them into loyal brand advocates. Being upfront about your shipping and return policies is a good start. Besides fostering trust, it can stop chargebacks in the long run. 

Communicate information regarding shipping costs, tracking options, expected times, and return procedures. With transparency in policies, there are fewer chances of misunderstandings or dissatisfaction with shipping and return processes. Ensure your policies are easily accessible on your website. Also, include them in order confirmation emails to get the message loud and clear to the buyer.

Implement Robust Fraud Prevention Measures

Although friendly fraud (chargebacks) seems like a less serious issue than data breaches and payment fraud, they are equally dire. Statistics show that abuse of the chargeback process cost merchants more than $100 billion in 2023. Ethoca recommends implementing a fraud and customer dispute intelligence solution to prevent these incidents.

A robust fraud prevention strategy is the key to merchant chargeback protection as it protects your business from unauthorized transactions. You can use security protocols such as Card Verification Value (CVV) checks, Address Verification Service (AVS), and 3D Secure authentication to validate each transaction. 

Also, monitor transactions to identify and flag suspicious activity, such as unusually large orders, differences between shipping and billing addresses, and multiple failed payment attempts. Utilizing fraud detection tools by payment processors can add an extra layer of security.

Provide Prompt Customer Support and Resolution

Effective customer support is vital for all businesses, but it should be extra sharp for e-commerce sellers. You must have prompt and responsive customer support in place to address concerns and issues raised by customers. The more accessible your support team, the fewer are the chances of disputes that lead to chargebacks.

Your support team should be available through multiple channels, such as phone, email, and live chat so that customers can connect easily. Also, train your support staff to handle chargeback inquiries professionally for quick resolution. Proactive communication can ensure timely resolution before issues escalate into major disputes. 

Maintain Comprehensive Records and Documentation

Documentation is a critical aspect of running an e-commerce business smoothly. Comprehensive records and documentation for all transactions can serve as evidence in case of chargeback disputes. Maintain accurate and detailed records of order details, shipping information, and customer communications to stay safe.

Besides having your paperwork in place, keep digital copies of invoices, receipts, and customer correspondence. Ensure they are secure, organized, and easy to access when you need them. Also, regularly review and update your records to ensure completeness and accuracy so that you can respond to chargeback requests.

In conclusion, chargebacks can be detrimental to your e-commerce business, making it vital to build your defenses against them. These best practices can mitigate the impact of friendly fraud and safeguard your online business from them.