Whether you use installment billing or negative option (continuity) billing, the recurring billing model is susceptible to chargebacks. This this article, we’ll explore a few ways to combat chargebacks.
Chargebacks are transaction disputes that occur if a customer is unsatisfied with a service or product, feels the transaction is fraudulent or frankly, just doesn’t want to pay.
They’ll then go directly to their credit card company and file a chargeback.
Three Primary Reasons for Chargebacks
- Bad practices: Customers can request a chargeback if merchants intentionally omit or fail to uphold contract terms, fees, or policies. Practices such as charging customer cards without authorization, increasing rates without warning, or failing to process cancellation requests or approved refunds lead to customer anger and distrust which ultimately leads to chargebacks.
- Fraud: Fraudulent chargebacks include identity theft and stolen credit cards.
- Friendly Fraud: Friendly Fraud is almost always the largest category of chargebacks for merchants. There’s nothing “friendly” about them, and they usually stem from a customer’s desire to not be held accountable to terms they agreed to at the time of the purchase or a customer’s desire to receive product and not have to pay for it.
Regardless of the reason, chargebacks are detrimental to your business; you lose revenue and incur fees.
The following are precautions that you can take to reduce unnecessary chargebacks and avoid churn:
Combating Chargebacks from Bad Practices
Customers may initiate a chargeback over misunderstood contract terms so it’s good practice to be as clear as possible in the RTA (recurring transaction agreement).
In addition, make sure to get explicit confirmation before charging recurring payments with an “accept” button or an electronic signature.
Online shoppers can’t see the actual products. This is why it’s crucial to provide accurate information on the website, so they don’t feel they’re getting something different than what they were expecting. Provide
- detailed descriptions of products and services,
- pictures wherever possible,
- dimensions of the products, and
- features and functionality of services or software.
Make sure that customers can reach you quickly; ensuring customers are able to contact you reduces the chance they contact the bank for a chargeback and increases the chance of retaining unsatisfied customers.
Put your contact details everywhere because the easier customers can reach you, the less likely they will initiate a chargeback.
Using live customer service exclusively can also cause frustration for customers, increasing chargebacks, and refunds.
A personalized, automated customer service response system like RevGuard can assist with alleviating customer frustration and is also shown to have reduced chargebacks.
Once customers reach you, make sure that your customer service reps are trained and well-equipped to help customers resolve the issue efficiently.
Customers are already not happy when they reach out, so it’s crucial that the customer experience is outstanding – it could save your business a chargeback.
It’s good practice to send reminder emails before charging a customer’s credit card, even for recurring payments (especially if you said you would do so) so they are expecting the charge and can review their bill if there are charges out of the norm.
Inform customers of changes to plans or pricing:
- trial or promotional periods ending,
- upcoming payments, especially if the last payment was not recent,
- contract renewals, and
- promotions they are eligible for.
Allow customers to cancel the recurring payment if increased fees will be a problem.
Fulfill cancellation or termination requests promptly. Once you’ve processed the request, communicate to the customer that it might take a few days for the request to be processed by the bank.
If you continue to charge the card after the request has been made, you’re at risk for chargebacks.
Use recognizable billing descriptors (descriptions on credit card statements). If cardholders don’t easily recognize the purchase, they may file a chargeback out of confusion.
If you process with an aggregator, their name may appear on the statement alongside yours which may lead to chargebacks but isn’t great for your brand overall.
If this situation is unavoidable, make sure to let your customer know what will appear on their statement so they expect the charge.
Combating Chargebacks from Fraud
If your recurring billing model offers products, use a reliable shipping service that provides online tracking and actively communicate expected shipping dates to your customers.
In addition, to help reduce friendly fraud, you should require customer signature as proof of delivery.
HAVE PROPER REPRESENTATION
It’s important to have proper representation when it comes to dealing with chargebacks.
Partnering with a reliable payment partner will help you fight unjust chargebacks, as chargeback management is something that many processors offer as part of their services.
Representation can help you recover lost revenue and improve your reputation with banks as they may assume you’re guilty if you don’t dispute a chargeback.
About the Author
Alice Chen writes and manages content for Payfirma. Payfirma’s omni-channel payment solutions make it easy for merchants to get paid any way their customers want to buy: online, in-store, or on the move.