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It’s easier than ever before for consumers to dispute credit card charges. Banks are automating the process, allowing them to keep up with more claims. Many mobile banking apps enable consumers to file chargebacks by pressing a few buttons. While this may sound like good news for the general public, the rapid increase in chargebacks can be extremely costly for small business owners.
This year U.S. banks will process $5.6B in chargebacks, according to data from Aite Group. That marks a 17% increase over what was charged in 2015. A single chargeback can cost a merchant between $20 and $50, and that’s not accounting for the lost sale.
Part of preventing chargebacks is understanding why the happen in the first place. According to Chargebacks911, a risk management company for merchants, the seven most common reasons for chargebacks are:
- Fraudulent transaction
- Products or services were not as described by the merchant
- The cardholder doesn't recognize the transaction
- Services were not rendered or merchandise not received
- Credit not processed
- Duplicate processing
- Transaction amount differs from the agreed upon amount
Small business can better shelter themselves from the oncoming storm of chargebacks by sticking to these six helpful best practices:
You should be using a chip card reader: Using the latest hardware to process card payments is your first line of defense against fraud -- a leading cause of chargebacks. It’s been almost two years since new liability laws shifted fraud responsibility to the “least EMV-ready party.” If you’re a store owner with old magnetic strip readers and no capability to accept chips, that means you. If you don’t have an EMV-ready credit card reader, contact your payment processor and see if they can provide you with options.
Take advantage of all available technologies: New card readers aren’t the only way you can combat chargebacks. Many credit card processors today are investing in technologies that are better at detecting fraudulent purchases or stopping chargebacks before they are processed. You should specifically look for merchants that come with services like Verifi. These can help you contact the issuing bank before your acquiring bank even receives a chargeback request. This allows you to potentially resolve any conflict before it becomes a strike against you.
Verify that the actual cardholder is making the purchase: Though it’s required, many merchants don’t bother to do a few simple checks that can help spot a fraudulent credit card transaction from going through. Check that the signature on the back of your customer’s card matches the signature on their receipt. Ask for an ID to see if the name on it matches the name on the card. These simple steps can go a long way in preventing fraudulent purchases at your store, and by extension stopping a great deal of chargebacks.
Follow all rules and protocols spelled out by your merchant account provider: Credit card processors and networks outline specific guidelines and processes merchants should follow. This includes everything from security protocols to what information you need to collect from your customers. If a chargeback is filed against you, it may be because you failed to follow some of these best practices.
Document everything. No matter how cautious you are, you won’t prevent all chargebacks. However, if you do have to deal with one there’s still a chance to get it reversed. Once a chargeback is levied against your business, you will have the opportunity to respond and present your case. You can improve your chances by documenting your sales well. For example, keep signed receipts from your customers, if you collect them.
Train employees that handle payments: All the precautions you take won’t matter much unless all employees follow the advice we outlined above. That means you should pass along all these lessons to anybody at your store who is handling payments.
This content originally appeared on ValuePenguin.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
