Implementing these best practices across your business can help you mitigate the risk and cost of chargebacks and the fees associated with return transactions
Typically, most organizations have a good grasp on their returns; however, through the advent of COVID-19, the payments industry is witnessing first-hand returns outside of normal.
Industries, such as travel and hospitality, are dealing with unprecedented returns due to customers demanding refunds. Retailers are also seeing a dramatic increase in returns due to consumers being concerned about cash flow or changing their overall purchasing habits. To compound the issue, and as a direct result of changing rules and restrictions from COVID-19, the payments industry is constantly monitoring and changing return and cancellation policies in an effort to remain compliant.
Now, more than ever, it is critical to understand the fees that you are paying for returns. For instance:
- Do you pay your acquirer or gateway for each return on a per-transaction basis?
- Are you receiving the credits back that you are due on return volume?
- Do you track your return reason code data?
- What extraneous fees are you assessed on return volume?
- Has a higher number of returns triggered reserve conversations with your acquirer?
In addition to monitoring the fees associated with your return transactions, review and keep your return/cancellation policy up to date. Ensuring your organization has a clear return/cancellation policy can help you better mitigate risk and further issues. Equally important, organizations should clearly display their return and cancellation policies at checkout stations, on their websites, in agreements, and, if possible, on packing slips or receipts.
Consider these points when implementing your organization’s return or refund policies:
- Who pays the cost of return shipping, you or the customer?
- Have you taken into consideration any cost to repackage or restock items?
- Do you accept opened packages?
- How does your organization determine a full vs. partial refund, exchange or store credit for an order?
- What is the allotted period for which customers can return products?
- How do customers initiate a return or exchange?
- Do you assess a modification fee for reservation changes?
- If a customer requests a refund, what is the expected timeframe?
- What is the latest the customer can cancel without repercussions?
- What happens if a customer cancels after the policy’s cancellation window closes?
- Do you offer alternatives to refunds (e.g., credits, vouchers, etc.)?
Detailing your organization’s return and cancellation policy will mitigate chargebacks as well. If a customer is fully aware of your return policy and understands how they will receive their refund, there is a less likely chance of the customer pursuing a chargeback. Notwithstanding, some chargebacks are inevitable.
Decreasing chargebacks
Chargebacks are an inconvenience that has to be dealt with, as they are costly – typically $10-$25 per occurrence – and take up employees’ time. Additionally, if your chargeback rate is too high, it can register the classification of a “high-risk merchant,” which could lead to having your organization’s merchant account frozen or closed.
There are several reasons for chargebacks, such as fraud, friendly fraud (“an honest mistake”), and technical errors. Fraud can come in various forms, but the most common is using illegally obtained cardholder data.
Friendly fraud is a label the payments industry places on customers who unintentionally allowed a fraudulent charge. Friendly fraud can happen for one of several reasons, for example:
- A customer doesn’t understand the difference between obtaining a refund directly with the merchant vs. obtaining a refund via a chargeback.
- A teenager uses Mom’s or Dad’s card to order something without Mom’s or Dad’s knowledge. Mom or Dad later see the transaction on their statement and proceed with disputing it through a chargeback instead of going to the merchant.
While not as much of the share goes to technical errors, some items can slip through the cracks, like being billed an incorrect amount, a bank error, or a refund that was approved but never completed.
Tips to prevent chargebacks
Monitoring and analyzing your chargeback reason codes can provide valuable data and insight into what may be causing recurring chargebacks. Chargeback reason codes can also help you identify trivial chargebacks that your organization may disagree with and choose to dispute.
Consider the following best practices for reducing chargebacks:
- Ensure your billing descriptor is recognizable and easy to determine
- Communicate with your customers
- Clearly describe your product or service
- Process and handle refunds and cancellations promptly
- Ensure your customers can easily reach customer service
- Utilize additional layers of authentication when possible
- Set clear return policies
- Notify your customer of upcoming recurring payments
- Provide your company’s contact information on receipts and your website
- Keep detailed records of all transactions
- Use a delivery confirmation service and set clear shipping expectations
- Use the Address Verification Service (AVS)
- On card-not-present transactions, collect the CVV
Implementing these best practices across your organization can help you mitigate the risk and cost of chargebacks each month.
The Redbridge team continues to monitor circumstances related to transaction returns and chargebacks. We are here to assist you and your organization in navigating these waters. Please feel free to contact a Redbridge team member if you would like to discuss further.