As a business owner, chargebacks can take a toll on your finances and your overall success. But there are ways to reduce and even prevent them from happening in the first place. Learn how with these 10 tips from PCI Booking. Read on to discover best practices for reducing credit card chargebacks and how to keep your business running smoothly!
What Are Chargebacks, When Do They Happen, and Why Does It Matter?
Chargebacks are the return of funds to a customer after they’ve made a purchase with their credit card. A chargeback occurs when a customer disputes the charge, and their bank or credit card company investigates the claim. They can happen for a variety of reasons, including fraudulent purchases, mistakes in payment processing systems, or merchant errors.
You need to stay on top of chargebacks because they affect your bottom line. Outside of simply losing the revenue from what you thought was a sale, chargebacks can result in fees or other financial penalties. However, there are even more consequences that we’ll discuss in further detail below:
How Chargebacks Impact Businesses: the Consequences of Chargebacks
Chargebacks can have a major impact on businesses, both financially and reputationally. The average cost of a chargeback in 2023 is anticipated to be $190. While this wouldn’t be too bad if it was a one-time occurrence, you may have to deal with dozens, hundreds, or even thousands on a regular basis.
Outside of the direct costs, customer disputes could lead to additional fees that you must pay. Depending on the number of chargebacks your business receives, you may also be subject to fines from merchant service providers.
In addition to financial penalties, there is also the risk of being placed in higher-risk categories by merchant services providers or banks due to high chargeback rates. This can result in higher fees, longer payment processing times, and even being denied access to certain payment methods or services.
Finally, there is the potential reputation damage that can occur when customers dispute their purchases. If your chargeback rate gets too high, customers may begin to question the legitimacy of your business or wonder if you offer quality products or services. This could lead to decreased customer loyalty and fewer sales in the future.
How Many Chargebacks Are Considered “Normal”?
The average chargeback rate for businesses is approximately 0.5%. This means that, for every 1000 transactions processed, you might expect to have five chargebacks. Of course, this number can vary greatly depending on the type of business and the payment methods used. For example, businesses that process payments from high-risk countries may see higher rates.
If your business’s current chargeback rate is slightly over or even substantially over 0.5%, it’s time to make some changes.
What Industries Need to Worry About Preventing Chargebacks?
Let’s go into more detail about which industries need to be most concerned with chargebacks, and outline some industry-specific strategies for how they can reduce them.
The Hospitality Industry
The hospitality industry is one of the industries most affected by chargebacks. This isn’t all that surprising when you consider that customers are making payments for services they’re not going to receive until much later, sometimes even days after. This increases the likelihood of chargebacks for several reasons:
Customers may forget about their purchase and dispute it later.
Customers may not be satisfied with what they received and decide to dispute the transaction.
Businesses may not have the proper PCI compliance tools in place to ensure secure transactions.
The hospitality industry should aim for a standard chargeback rate of 1%. Anything higher than that can have serious repercussions for hospitality businesses, as it means they’re not doing enough to protect themselves from fraudulent activity or customer dissatisfaction.
The Retail Industry
The retail industry is one of the most vulnerable to chargebacks. This is due to a combination of factors, such as the fact that customers are often able to purchase online now. In this scenario, it’s difficult for businesses to establish customer identity and verify payment credentials before completing a transaction. Additionally, customers may not receive their products or services until several days later, after the transaction has been completed.
The Travel Industry
The travel industry is no stranger to chargebacks. In fact, this sector is particularly vulnerable to the threat of chargebacks due to the complexity of the transactions involved. From airline tickets and hotel reservations to car rentals, customers have a wide range of options when it comes to booking travel accommodations. This allows for more opportunities for fraudulent activity or customer dissatisfaction, as well as a higher risk of chargebacks.
The travel industry typically has a standard chargeback rate of 0.6% – 1.5%. That being said, it’s important for businesses to keep track of their own rates and take action if they start to exceed the average. This could be a sign of fraud or customer dissatisfaction, and should be addressed quickly in order to prevent further losses.
The Finance Industry
Chargebacks are a common concern for businesses in the finance industry. This is especially true for businesses that process payments, such as banks and payment processors. Chargebacks can occur due to fraud, customer dissatisfaction, or even technical errors.
The standard chargeback rate for finance is 1% of total transactions. However, this rate can vary based on the type of business, the number of transactions processed, and the payment methods accepted.
Businesses in this industry must take extra measures to ensure compliance with PCI DSS (Payment Card Industry Data Security Standard). This includes implementing appropriate security measures to protect sensitive cardholder information and data. Additionally, they must maintain accurate records
to ensure that customers are not double-billed. In order to reduce chargebacks, businesses should also use fraud prevention measures such as address verification systems (AVS) and card verification value (CVV2).
10 General Tips for Reducing Chargebacks
Now that we’ve reviewed some specific industries that need to be cognizant, let’s dive into 10 general tips for reducing chargebacks.
1) Prioritize Security
Businesses must ensure their payment systems are secure and comply with PCI DSS. This includes encryption of data, secure servers, tokenization and more.
2) Develop Clear Return Policies
To reduce the number of chargebacks related to returns, businesses should develop clear return policies that are prominently displayed on their website and in their store. This will help customers understand what they can expect before they purchase a product or service.
3) Improve Customer Service and Communication
Providing clear and prompt communication is key to reducing chargebacks. Businesses should strive to resolve issues quickly and efficiently in order to prevent them from initiating a chargeback. Additionally, businesses should ensure that their customer service staff are properly trained on how to handle customer inquiries and disputes.
4) Manage Recurring Payments
Businesses should carefully manage recurring payments to reduce the number of chargebacks due to unauthorized or mistaken charges. This can be done by providing customers with a detailed explanation of the payment plan, as well as an easy way to cancel or change their subscription.
5) Invest in 3D Secure Solutions
3D Secure solutions provide an extra layer of security for online payments. Businesses should invest in these solutions to protect their customers from fraud and reduce the number of chargebacks their business deals with.
Learn More About 3D Secure Credit Card Authentication
6) Ensure Your Billing Information Is Clear
The last thing you want is for customers to be confused about the charges they’re making. Your billing information must be clear and concise so that customers know exactly what they’re paying for and when. This will help reduce chargebacks due to confusion or misunderstanding.
7) Invest in PCI Compliance Tools
Investing in PCI compliance tools can help to ensure that your business is secure and protected from chargebacks. These tools can help with fraud prevention, payment gateway security, and more. By investing in them, you can not only protect yourself from chargebacks but also increase your customer’s trust in your business.
8) Use Predictable, Consistent Shipping Practices
When it comes to reducing chargebacks, predictable and consistent shipping practices are key. Make sure that you’re providing clear shipping timelines and policies so customers understand when they should expect their orders to arrive. Additionally, make sure that your shipping policy is clearly stated on your website and in your emails. This way, customers can be sure of what they’re getting and won’t be surprised by any unexpected charges or delays.
9) Conduct Credit Card Risk Assessments
Credit card risk assessments allow you to identify potential fraud risks and take preventative steps to reduce the number of chargebacks. Risk assessments help you determine which customers may be more likely to file a chargeback, and they can also alert you to any suspicious activity that could lead to fraudulent purchases.
10) Work With a Professional Like PCI Booking
At PCI Booking, we are dedicated to helping businesses protect their data and reduce chargebacks. Our customized software solutions and security offerings can help you prevent chargebacks and lock down your company’s security with ease. Our team of experts will work with you to ensure that your data is safe and secure so that you can focus on running your business without worrying about fraud or chargebacks. Contact us today to learn more about how we can help protect your business from fraudulent activities.