Brazil has the highest rate of fraudulent chargebacks per consumer, according to Ingenico’s Global Online Fraud Panorama 2016 report. The company estimates that 3.55% of online consumers request a fraudulent chargeback. The rate is four times higher than the third country in the rank, Russia, with 0.82%. Therefore, controlling chargebacks is especially important for online businesses operating in the country.
A high chargeback rate can seriously affect an online business’ financial health and undermine the company’s reputation with credit card schemes and payment service providers. Some situations that trigger chargebacks cannot be prevented by the merchant, but there are measures to significantly reduce chargeback rates. Seeing as there are several reasons why customers may file for a chargeback, there are also many aspects that must be cared for in e-commerce to keep chargebacks under control.
Main Reasons to File for a Chargeback
Fraud is one of the main causes of chargeback requests. However, there can be different types of fraudulent payments. The best-known fraud type in e-commerce is effective fraud, in which the purchase of products or services is made with stolen credit cards or data. However, this is not the only frequent type of fraud: there is also friendly fraud, in which customers file for a chargeback intentionally in order to get a product or service without paying for it.
However, part of the chargeback requests are not intentionally fraudulent and can be more easily avoided by the merchant. There are common situations in which customers file for a chargeback, for example when they do not recognize the concept on the credit card statement, the product is damaged or the delivery of the product or service is not carried out as expected.
The Keys to Keep Chargeback Rates Under Control
In Brazil, it is very easy to request a chargeback and in almost all cases the dispute ends in favor of the buyer. This is the reason why many customers use it as an easy way to get their money back when they are not satisfied with the product or service. See below for the most important measures to prevent the consumer from pulling the chargeback trigger.
- 1. Use an Anti-Fraud System
An anti-fraud system will reduce the number of fraudulent transactions, except for friendly fraud, which can rarely be identified by fraud prevention tools, mainly because it is characterized as a real transaction. PagBrasil offers PagShield, a fraud prevention service that uses a modern system to monitor consumer buying behavior in order to identify suspicious transactions. By analyzing factors such as the address provided against the IP geolocation, identification of the device used and social networks among others, PagShield’s algorithm adapts itself and becomes more efficient. The merchant can configure the system and define the transactions he wants to analyze, according to the store’s average selling price. When a transaction is identified as suspicious, there are two scenarios: in the first, the transaction receives a red flag and is denied immediately. In the second scenario, the anti-fraud will pre-authorize the payment, giving the merchant time to perform manual checks before capturing the transaction.
- 2. Optimize Your Soft Descriptor
One of the main causes of chargeback requests is the non-recognition of the purchase. To avoid this situation, it is important that the soft descriptor, which is the message that identifies the purchase on the card statement, can be quickly associated with the purchased product or service. For example, if the brand name or product is better known by your customers than the name of your company, avoid setting the company’s name as the soft descriptor. In addition, it is important to send a purchase confirmation message specifying the amount, currency and soft descriptor that will appear on the card statement. PagBrasil’s system allows merchants to define a soft descriptor with up to 13 characters, which can be changed at any time in the PagBrasil Merchant Interface. Not all providers or acquirers offer this option, therefore it is recommended to consult with your payment provider as to whether or not they offer soft descriptor customization.
- 3. Give good customer support
Be sure to make the contact details for support visible on the website and provide fast customer service. It is also recommended to write on the receipt an email address and a phone number to reach in case there are problems with the purchase. It must be clear that there is an easy way of communicating so that the customer prefers to handle any issue with the merchant before calling his bank. Solving support cases quickly will prevent the customer from getting frustrated and choosing to file a chargeback.
- 4. Clearly Describe the Product or Service and Its Conditions
Do not create false or inaccurate expectations about your product or service. If the customer receives something that does not match their expectations and is unable to find a quick solution via support, they will likely request a chargeback. To avoid this situation, the product description should be very clear, without omissions. If there are photos, they should preferably be in high quality and purchase and delivery conditions must be detailed prior to payment. Misleading information about the product sold will generate more losses than profit. Unhappy customers can damage your reputation and these sales will generate payment processing fees as well as chargeback fees.
- 5. Refund
Although many merchants tend to avoid refunds, it is an excellent alternative to stop a chargeback. Display the refund policy and provide an easy request procedure. In certain cases, such as when the item delivered is damaged or it is not shipped, a refund is the only way to avoid the chargeback as you will likely lose any dispute. In addition, refunds will generate lower processing fees, evade penalties and offer the possibility of recovering the product delivered.
- 6. Avoid Unexpected Charges
Any unexpected concept or amount charged on the customer’s card statement will potentially be disputed, generating a chargeback. Therefore, in segments such as SaaS (software as a service), subscription services or upsells, it is crucial to inform in advance about subscription renewals that will generate charges. In addition, it is necessary to make it simple for the consumer to cancel the renewals and avoid any unforeseen charges associated with the product or service. For businesses that sell physical products with international shipping, it is advisable to warn the consumer about possible taxes, customs fees or special delivery conditions. A good option is to charge these fees in advance so that the buyer has no extra cost.