Common Reasons for Chargebacks

Every eСommerce business has encountered chargebacks, no matter what products they sell. There are a large number of reasons why a customer would want to contact the issuing bank for a chargeback. And while it can be difficult to understand the true motivation of cardholders, there are a few primary reasons that are more common than usual.

Understanding the reasons for chargebacks is essential for merchants to prevent and deal with them effectively. The best way, which a large number of online merchants use, is to use special chargeback prevention services such as Chargebaсkhit. It’s much more convenient and effective than dealing with chargebacks yourself because a professional service will help to reduce chargebacks and fraudulent transactions, prevent your business from high risk, and develop an effective chargeback protection strategy. You can also check out Disputifier which offers AI-powered Fraud Prevention, “Order Not Received” Mitigation Tools, and VerifiTM and EthocaTM Chargeback Alerts.

Nevertheless, at the initial stage, online merchants should know what they may encounter in the process, so we suggest studying the most common causes of chargebacks.

What Are Chargeback Reason Codes?

To find out the reason the cardholder gave to the issuing bank to dispute the payment, you need to find the reason code in the chargeback notice. Depending on the card network that processes the transaction, a unique reason code may be assigned from the list of reasons. While the reason codes vary from card network to card network, they all fall into four main categories: fraud, authorization, processing errors, and consumer disputes.

Once a dispute is initiated, the issuing bank sends the information to the acquiring bank, and then a notification comes to the online merchant with a reason code included.

Although each chargeback has a different reason code, it doesn’t always indicate the valid reason for the dispute on the buyer’s part. That’s why we’ve selected the five most popular reasons for chargebacks today.

What Is Friendly Fraud?

Friendly fraud is a very popular type of chargeback cause that occurs in all kinds of online businesses. Such transactions happen when customers submit illegal chargebacks. For example, when they received an order and contacted the issuing bank with disputes, arguing that the item was not delivered. More often, friendly fraud involves cheating in order to keep goods and get a refund for them at the same time.

Unfortunately, friendly fraud is very difficult to prevent because it is unknown what customers think and what they will do at the next moment. Today, the best defense against friendly fraud is good customer service and appealing to such disputes. It also helps to prevent friendly fraud by having fast customer support so customers can contact the seller if they have any problems.

What Is Credit Card Fraud?

Another fairly common type is fraud. This happens when a buyer scams the seller by making a large number of fraudulent purchases while using stolen credit card payment information. He then cashes in his earnings before the seller has time to notice it. When the real cardholder notices one or more unauthorized transactions from the bank statement, a large number of chargebacks fall on the merchant.

How Does Bad Customer Service Lead to Chargebacks?

There are times when poor customer service can lead to chargebacks. If there is something wrong with the product or service, the consumer usually goes to the seller for a solution. But if the seller can’t or won’t solve the problem, the consumer has the absolute right to go to the issuing bank and open a dispute.

One of the reasons customers are unwilling to contact the buyer when there are problems with their orders is the countless call center referrals, series of useless emails, and other ways of communicating that are often ignored. After such frustrations and the buyer is left, the only way to get their money back is to go to the bank and initiate a chargeback.

To prevent such chargebacks, sellers should make sure that direct contacts are available on the site, customer service is prompt, and the refund policy is simple and straightforward. After all, it’s much easier to make a refund rather than lose money and business reputation over a chargeback.

How Do Fulfillment Issues Cause Chargebacks?

Poor fulfillment of an order, which includes storage, packaging, delivery, and other activities on the way from the seller to the buyer, can be a reason for a chargeback. Failure to meet delivery deadlines, damaged parcels, and order bundling that does not match the description can lead to customer dissatisfaction.

In this case, there could be two reasons, the seller’s mistake or problems with contractors. Nevertheless, the seller is responsible at all stages of the order’s life cycle, so it is his responsibility to minimize such cases. Of course, running a business without making mistakes is impossible, but it is important to carefully analyze reason codes to understand the seller’s mistakes and correct them.

Canceled Subscriptions and Chargebacks

For service providers who operate using the subscription model, problems caused by late cancellations can also lead to chargebacks. There are cases where customers are inadvertently charged a monthly fee even though they have already canceled their subscription, which inevitably leads to a chargeback. In other cases, customers forget that they have subscribed to the service and do not cancel the subscription before making the next deduction.

A great way to minimize such chargebacks is to send a personalized email to each customer a few days before they are charged the regular payment. This email should also include a link and simple instructions on how to cancel the recurring payment. In addition, it would be great if you provided contact information in the email so that the customer can contact you to resolve disputes quickly.