Chargebacks: what they are and how to avoid payment reversals
29/03/2022Learn about chargebacks, how they can impact your e-commerce business and how to minimize payment reversals.
The overall objective of any online business is to continue increasing sales conversions and payment approval rates. However, businesses that fail to pay enough attention to the user purchase experience and online store security protocols could face problems that impact the business financially, one of which is chargebacks.
E-commerce businesses that accept credit cards at checkout commonly receive requests to reverse payments. This is bound to happen at some point. However, to reduce the chance of this occurring, it is critical to understand why consumers dispute payments with their card issuers. Continue reading!
What are chargebacks and what might lead to a disputed purchase
Chargebacks are part of a payment reversal process that occurs when a customer disputes a credit card purchase with their issuing bank. The financial institution analyzes the problem reported by the user and then decides whether or not to authorize a purchase reversal (the issuer does not make this decision on its own, it has to abide by the payment arrangement rules and regulations from the payment processor).
Chargebacks are most frequently caused by a cardholder disputing an unrecognized purchase or by commercial disagreements caused by problems during the sales or after-sales process. However, a reversal may be triggered by a processing error that can easily be remedied, or by attempted fraud. For further information, see
Online payment fraud
Stolen credit card details often cause problems for both card holders – when they see purchases they didn’t make on their bills – and store owners. Frequently, the service has already been performed or the product shipped. If there is proof of fraud, the only option is to reimburse the card holder. After all, e-commerce businesses are responsible for ensuring their purchasing processes are secure. Users themselves can also mitigate certain types of fraud.
Chargebacks can also occur when a customer recognizes a transaction, but nevertheless requests a chargeback. This is known as chargeback fraud. Another option is friendly fraud, when a customer fails to recognize a purchase because they simply forgot about it or someone they know used their card without their knowledge. In such circumstances, there is a good chance the chargeback request will be refused.
Commercial disagreement
The E-Commerce Act allows consumers to dispute (credit card) purchases if something does not go as expected. Defective goods, missed delivery deadlines, different product characteristics from those advertised (colors or other specifications), choosing the wrong size… All of these issues can trigger chargebacks (if the store does not have an after-sales procedure, customer service or exchange policy or does not cancel the purchase or refund the payment).
Double billing
Payment processing errors caused by card acquirer or operator issues can cause problems like double billing, when a consumer is charged twice for the same purchase. A good payment API avoids this.
Chargebacks: how to avoid them
Apart from affecting cash flow, chargebacks can also affect trust in your brand. When an e-commerce customer asks to cancel a credit card purchase, the losses include the cost of driving traffic to the store, shipping and, of course, the feeling of not having offered good customer service. Here are three ways to avoid this:
Accept all local payment methods
Offering other payment methods in addition to credit and debit cards is a great way to avoid data misuse, because some forms of payment may experience more fraud than others. Compared with credit cards, it is generally less common to see reversals when customers pay by boleto or instant payment (Pix).
Use a payment provider (PSP) that offers transaction security
Using a payment intermediary to analyze purchases before they conclude is an ideal way to avoid chargebacks. PSPs are the bridge between banks and businesses and offer both technical processing (like gateways) as well as financial processing (actual cash transfers). Another advantage payment providers offer is the option to use additional APIs and alternate payments methods as part of a single agreement.
Anti-fraud: 3D Secure chargeback offers the best protection
A verification system is the best way to protect yourself from the biggest cause of chargebacks: fraud. Some PSPs, like Bexs Pay, come with a built-in anti-fraud solution. The software identifies non-standard purchases and uses technology to cross-reference the data it collects with a user’s behavior to prevent possible scams. Bexs Pay uses several security protocols, like 3D Secure, which add an extra layer of protection to card transactions. The technology can authenticate a customer with their issuing bank in just a few seconds without having to leave the checkout screen.