How Good Customer Service Can Reduce Chargebacks

Chargebacks are a major threat to businesses big and small. Luckily, there are many ways to mitigate chargebacks and good customer service ranks among the most effective tools. We’re going to cover how customer service can help companies avoid chargebacks, but first, let’s discuss why they’re such a serious threat.

A chargeback is essentially a payment dispute, and in practice, it works like an unauthorized refund. A cardholder can contact their card-issuing bank to contest a charge. The bank will then file a chargeback, and when they do, they’ll claw back money from the transaction. So, if someone bought a $100 pair of jeans from your ecommerce shop and then files a chargeback, you’ll lose that $100, and the cardholder will get it back.

If you decide to dispute the chargeback and win your case, the funds will be returned to you. Otherwise, the revenue from the transaction is gone. It's not just the revenue from the sale that’s at stake, however. You’ll also get hit with a chargeback fee, which typically ranges from $20 to $100. Even if you win the chargeback dispute, you’ll still be on the hook for the chargeback fees.

Unfortunately, these fees are not the only cost associated with chargebacks. Merchants are assigned a chargeback ratio, which measures how many chargebacks they get hit with for a given number of transactions. Your chargeback ratio is calculated simply by taking the number of chargebacks received in a month and dividing them by the number of transactions.

If your chargeback ratio gets too high, your acquiring bank could refuse to work with you or could charge higher fees. Should you be dropped by your current bank, you may have to work with a “high-risk” acquiring bank, which will typically charge higher fees. These fees will apply to all transactions, not just ones resulting in chargebacks.

Add it all up, and chargebacks are a major burden for businesses. Fortunately, an efficient, responsive customer service department may reduce chargebacks, thus saving you from fees while also helping keep your chargeback ratio low. Let’s look at specifically how good customer service can ward off chargebacks.

Authorized Refunds Are Better Than Unauthorized Refunds

As already mentioned, a chargeback functions like a refund, meaning customers can use them to get their money back. In some cases, customers will file a chargeback because they otherwise can’t secure a refund.

Let’s say the customer you sold a pair of jeans to contacts you to make a return. Maybe the jeans don’t fit, or you sent the wrong color. If you don’t respond to the customer promptly, they may instead turn to their bank to request a chargeback. If the customer has a good argument that the merchant didn’t uphold their end of the bargain (perhaps because you sent the wrong size), the bank may approve a chargeback.

A customer might also try to skirt around your return process if you make it cumbersome or expensive. For example, let’s say you make the customer pay for shipping and/or you assess a restocking fee. A customer may simply decide that a chargeback is the better route because it’ll save them money.

No matter the situation, if the customer has a legitimate reason to return the products, your best bet is to honor the request, and also, to make the return process as frictionless as possible. You could send the customer a prepaid shipping label and waive the restocking fee, for example.

Returns are a burden on merchants. However, they are usually much less of a burden than a chargeback. A responsive, accommodating customer service department can ward off chargebacks that stem from legitimate returns.

Let’s look at more ways to combat chargebacks.

Data Provides Clarity

Chargebacks are often the result of first-party fraud, which is sometimes called friendly fraud. (Make no mistake, “friendly” fraud is far from friendly.) Chargebacks can also stem from confusion. A customer may have forgotten that they made a purchase and might think they were targeted by fraudsters. In both cases, data is your friend.

Modern dispute management platforms can collect data from a purchase that you can then share with banks. The best dispute management platforms like ChargebackHelp can even automate this process, sending data to banks automatically. The bank can then work with its cardholders to verify the purchase. With a responsive customer service department, you can also work with cardholders to clarify transactions and any questions they might have.

By providing the right info, such as what was bought and when it was delivered, you may be able to clear up confusion. If a customer is trying to commit first-party fraud, some bits of data may prove that the purchase was legitimate and that the merchant held up their end of the bargain. For example, a signed shipping receipt might prove that the customer took delivery of the order, even if they’re trying to claim otherwise.

Stay Vigilant with Chargeback Alerts

It's also possible to set up chargeback alerts. With these alerts, you’ll be warned of pending chargebacks, thus providing you a chance to resolve the dispute before it’s officially filed. This can protect your chargeback ratio and save you from chargeback fees.

If you receive a chargeback alert, sharing the right data could clear the matter up. If that doesn’t work, you may still have a chance to simply refund the customer, thus preventing fees and protecting your chargeback ratio. Of course, it’s best to avoid chargebacks and refunds, but sometimes that’s simply not possible.

Either way, a proactive customer service department can help reduce chargebacks, thus protecting merchants and their revenues.