Refunds vs. Chargebacks in 2018

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Whether you sell products online, offline or both, returns are an unavoidable part of doing business. Some customers will be fine doing an exchange or getting store credit. However, a percentage of customers will want to return what they bought for a full refund.

Payment processing companies understand this reality, which is why they try to make it easy for businesses to handle returns without taking any major hits. As long as you maintain a healthy return rate for your industry, having customers who change their mind about purchases shouldn’t have any significant impact on your bottom line or operations.

What can cause problems for a business of any size is receiving chargebacks. Although chargebacks have some similarities with refunds, we’re going to cover the critical differences between the two, as well as what you can do to protect your business from being negatively impacted by chargebacks in 2018.

The Key Differences Between Chargebacks and Refunds

When a customer wants a standard refund, they will contact you online or bring their purchase back to your store. What sets a chargeback apart is that a customer goes directly to their card-issuing bank to dispute being charged for their purchase. The bank will then credit the customer before ever contacting you.

After a chargeback is processed, your business will be charged that amount, as well as a penalty ranging from $20 to $100. Getting too many chargebacks can result in a processor downgrading or suspending your merchant account.

The Best Ways to Protect Your Business from Chargebacks 

Before we discuss how to protect your business, it’s important to be aware of a trend that’s unfortunately very prevalent in 2018. The trend is known as “friendly fraud.” This phrase refers to consumers who make purchases with the deliberate intention of later disputing them. It’s believed that this behavior currently costs retailers as much as $16 billion a year.

Between the consequences associated with getting too many chargebacks and the prevalence of friendly fraud, you may feel powerless as a merchant. The good news is there are steps you can take to protect against legitimate and fraudulent chargebacks.

As far as avoiding legitimate chargebacks, the single best step you can take is making returns extremely easy for customers. Although some businesses are worried about customers taking advantage of a generous return policy, the pros almost always outweigh the cons.

Since great customer service should prevent most legitimate chargebacks, the area where most merchants need additional help is with avoiding friendly fraud. A relatively simple but effective measure is to require customers to enter card verification values during checkout. You can also implement other filters to deter friendly fraud attempts.

If you have concerns about being able to implement those preventive measures with your current processor, looking into a new processing company can be very useful for avoiding chargebacks.

Posted on Monday, May 14th, 2018