Best Practices to Prevent Card Chargebacks

India is witnessing a massive surge in credit card usage. In March of 2024, the number of cards issued across the country crossed the milestone of 100 million for all banks and fintech companies combined. With the rising usage pattern, there is also an emerging trend of risks that card issuers, customers, as well as merchants must tackle to ensure a value-driven ecosystem for all.

One of the most difficult challenges to deal with, especially for merchants, is the credit card chargeback problem.

Credit card chargebacks are slowly becoming a major challenge for both offline and online merchants in the country. With consumer protection laws in place, it is often merchants that are left at the receiving end of losses when chargeback claims are made. Card fraud is also on the rise which directly impacts the chargeback volumes as more customers report or dispute transactions not done by them but by fraud. For the 6 months ending in March 2024, there was an estimated INR 2604 crore worth of payment fraud that happened in India. A good majority of this would be related to compromised credit cards which will eventually result in increased chargeback claims.

 

Tackling the Card Chargeback Problem

Traditionally, merchants used to write off chargebacks as business expenses. The efforts, legal recourse, and time delays involved in disputing such charges with card issuers were a complex and herculean endeavor. However, as the scale of chargebacks escalates, it is no longer feasible for merchants to ignore the loss as the impact on their profitability will be significantly high.

As with several challenges in the payment space, the best approach in this scenario is also to follow the “prevention is better than cure” model of operations. Merchants must adhere to best practices in payment systems to eliminate instances of chargebacks from customers. Let us explore a few of these best practices in detail:

·       Simple and transparent customer engagement

Every interaction that a customer has with the merchant should be transparent. Every charge involved in a transaction should be communicated upfront by the merchant to the customer. Hidden fees, deviations from agreed terms owing to unknown reasons, etc. are some of the major reasons why customers who purchase products later dispute the card fee and claim chargebacks. To eliminate this scenario, the best option for merchants is to establish clear communication strategies and guidelines across all sales channels. They must ensure that customers are educated about the final cost that will be charged to their card for the services or products purchased.

·       Identify the core reasons behind rising chargebacks

For merchants, the biggest step they can take to reduce chargebacks is to eliminate the very fundamental reasons why customers claim chargebacks. This exercise will involve a more granular analysis of data from their transactional relationships with all chargeback customer profiles. This will help in identifying the underlying cause or root of the problem. It could be a particular payment workflow error, product category, price point, etc. that results in more chargebacks happening. Identifying this hidden pattern behind chargebacks is crucial to pinpoint or isolate such experiences and prevent future chargebacks.

·       Build resilient payment processing systems

Erroneous transactions that occur due to delays in the payment processing system or other factors might often lead to double charges. Such situations are a major source of chargeback claims from customers. Hence, merchants need to invest in highly resilient payment solutions, while focusing on offering high performance. This combination will eliminate or reduce the possibility of errors in transactions resulting in fewer chargebacks.

·       Implement stringent anti-fraud measures

Vulnerable workflows in your business’s payment ecosystem could be targeted by cybercriminals and fraudsters to exploit unsuspecting customers. By siphoning off their credit card details, such fraudsters may initiate false transactions which will eventually lead to customer chargebacks once the bill captures the transaction. Merchants need to have a strategic approach while leveraging different technology solutions to power payment and revenue operations. Security considerations must never be compromised for any kind of biased decisions. They must implement the right security infrastructure that includes a range of fraud-detection solutions and preventive security checks.

 

·       Maintain detailed records

There are several instances where customers dispute credit card charges owing to the ambiguity in the itemized bill. They may not understand what a specific line item is and may perceive it as an error and raise chargeback requests. For merchants, the best way to solve this dilemma is to maintain a standardized log of transactional activity for each credit card. The report should have details about each item of a bill. This will be a critical asset in resolving disputes when chargebacks are legally challenged.

Minimizing card chargebacks – A strategic priority

Ensuring that credit card chargeback volumes are minimized is a key priority for financial institutions in the coming years. The market competition is creating only a few opportunities to make sizeable profits from credit cards. Hence, every avenue to minimize revenue leaks is of critical importance.

Following the best payment and card management practices is just one part of the solution. Merchants need to combine this with the implementation of the right technologies to facilitate seamless payment experiences across their digital and physical customer interaction points. This is where a technology partner like Verinite can be a huge asset. Get in touch with us to know more.