Hi Nico,
I recently bought a business that sells a line of personalized hair care products. I’m looking forward to expanding and adding skincare, but I’m noticing a problem with chargebacks. We have maintained a high volume of sales consistently, and everything seemed to be going great. But recently, I was looking over the numbers related to our chargebacks and realized it’s not where it should be performance-wise. In the past, as long as my ratios were in check, I never really bothered to explore any further. Now that I have, I realized just how much revenue we were losing. After poking around, it appears most of these were for legit sales. It’s not the number of disputes I’m concerned with, but rather the effect these chargebacks are having on our bottom line. What can I do to help?
--Trying to clean up with online sales
Dear Trying to Clean Up,
I hear your frustration. This is one of the most common concerns I hear from merchants. It is an issue not only with the health and beauty industry, but pretty much every industry across the board. Often, merchants get blindsided, and that can have big consequences.
This is why we offer a platform that has reporting, analytics, and data at your fingertips. And no, you don’t have to be a data scientist to understand it. In fact, we have some clients who come to us only for chargeback management for that reason. (Yes, this is a shameless plug for a service that can really benefit your business. Get more info)
It helps to take a closer look at what’s going on in order to make some decisions about what to do. Let’s be real, the chargeback system is intended to protect the consumer. To the extent that it can stop bad players, that’s a good thing. As a merchant, you don’t want to compete against fraud or have someone giving online sales a bad reputation. But that’s not what we’re dealing with here.
In your case, we’re talking about legitimate orders that were placed and that you fulfilled. In many cases, after a product is sent, customers contact their credit card company about the order and claim it wasn’t them. It’s called “friendly fraud.” The credit card company issues a refund to the customer on the spot and then forcefully takes back the money you were funded on the sale. Chances are you won’t get an immediate notification about the complaint, which is why it seems like the money just disappears. You’re out the product and the cost of handling and shipping. Not to mention, the cost it took to acquire the customer, to begin with. Plus, we know the bank is always watching your ratios, and if they go too high, your account may be subjected to further scrutiny.
There are some basic things you can do that may help to lower your chargeback. These things have the added benefit of improving customer service, which can also boost your bottom line.
Have a clear return policy and make it visible. Some merchants are concerned that this kind of visibility will increase the return rate, but that’s not what we’ve seen. And, it’s better to have the customer coming to you if there’s a problem rather than going to their credit card company.
Follow up with customers after the sale. Set up an automatic contact to check on their satisfaction. Surveys and customer reviews are a great way to not only find out if there’s an issue, and it’s another opportunity to get another sale.
In addition, adding services like 3D Secure from Paay can make a world of difference. This is the only tool we’ve seen that helps with fighting friendly fraud. It’s an unnoticeable layer of tech that reviews the transaction data during the checkout process, friction-free. If everything lines up, the transaction gets a thumbs up which means the sale is successfully “authenticated”. That means if a customer attempts to file a fraud-related dispute, the bank assumes the liability and your business is able to avoid the chargeback process and its penalties altogether. If the transaction is not “authenticated”, however, the sale will still be processed. The only difference is, if this same customer were to contact their bank to file a dispute, the liability shift would not be applicable here leaving you on the hook, as you currently are.
It’s important to understand, no matter what the result of the authentication process is, this will not negatively impact your conversions. Just because a transaction does not get successfully authenticated, does not mean it’s a bad sale or that this customer is fraudulent. It simply means, based on the data being passed, it’s just not enough info for the banks to feel comfortable assuming the liability.
One other little-known benefit to utilizing 3DS is the lift in overall conversions. Many merchants have seen fewer declines and an increase in their approval ratios. This is related to the fact that the card-issuing banks and card brands now have more access and visibility into these individual sales. As a result, they are much more comfortable allowing these sales to process freely through their clients’ (your customers’) credit cards.
Based on my experience, the problems you face are actually quite common. I don’t believe you have any major issues with your products or your operations. I think it’s a matter of taking advantage of technology and using these programs in your favor. From what we’ve seen, making this slight change will significantly benefit your bottom line.
Let me know if you're ready to make the change and we can get you plugged in.