Top 15 Mistakes Merchants Make When Fighting Chargebacks

Chargebacks pose a significant challenge for merchants, disrupting cash flow, damaging reputations, and straining day-to-day operations. These disputes arise when customers dispute a transaction, resulting in the reversal of funds back to their account. While intended as a protection for consumers, chargebacks can become a costly and time-consuming burden for merchants, especially when disputes are not handled effectively or efficiently.

Understanding Chargebacks and Their Challenges

Chargebacks can arise for several reasons, including fraud, friendly fraud, or merchant errors. Each category requires a tailored approach to prevention and resolution:

• True Fraud: Stolen payment credentials used without the cardholder’s consent.
• Friendly Fraud: Legitimate transactions disputed by the cardholder, often as a result of buyer’s remorse or misuse of the chargeback process.
• Merchant Errors: Issues like unclear policies, poor customer service, or incorrect order fulfillment.

When mishandled, chargebacks can have a negative effect, increasing fees, straining operational budgets, and even risking merchant account termination.

The solution? CB-Alert:

By providing real-time notifications, fraud detection tools, and automated workflows, CB-Alert helps businesses tackle disputes head-on and protect their revenue.

Mistake #1: Not Communicating with Customers

Poor customer communication is one of the most common triggers for chargebacks. Customers who can’t resolve their concerns through customer service are more likely to file a dispute.

Solution:

• Ensure refund policies and contact details are easily accessible on your website.
• Offer responsive customer support to address issues promptly.
• If a chargeback occurs, contact the customer to resolve the dispute before escalating further.

Mistake #2: Little or No Knowledge of Chargeback Reason Codes

Chargeback reason codes are integral to understanding the nature of disputes and determining the specific evidence needed to respond effectively. Each card network, such as Visa, Mastercard, American Express, and Discover, has its own set of reason codes. These codes categorize disputes, such as fraud, authorization issues, or service/product dissatisfaction, and outline the documentation required to contest them. Without a solid grasp of these codes, merchants risk providing insufficient or incorrect evidence, leading to higher chargeback losses and reduced win rates in disputes.

Solution:

• Stay up-to-date on reason codes for all card networks.
• Develop an internal guide for responding to specific reason codes with compelling evidence.

Mistake #3: Failing to Fight Chargebacks

Not disputing chargebacks means guaranteed losses. While some disputes may not be worth the effort, merchants should carefully evaluate each case to maximize recovery.

Solution:

• Analyze every chargeback to determine if it’s financially viable to fight.
• Pursue disputes with significant revenue impact or recurring friendly fraud.

Mistake #4: Wasting Time on Resolved Disputes

Merchants often waste resources on disputes already addressed by their acquirer through automatic representments.

Solution:

• Understand which disputes qualify for automatic representment.
• Coordinate with your payment processor to avoid duplicating efforts.

Mistake #5: Ignoring Fraud Trends and Red Flags

Neglecting to track fraud patterns and warning signs can lead to repeat losses.

Solution:

• Monitor chargeback data for common causes and recurring fraud trends.
• Use fraud prevention tools such as chargeback alerts to adjust strategies and block high-risk transactions.

Mistake #6: Spending Too Many Resources

Fighting chargebacks can drain time and money, especially for small businesses.

Solution:

• Implement chargeback management tools like CB-Alert to streamline workflows.
• Allocate resources strategically, focusing on high-priority disputes.

Mistake #7: Only Focusing on Winning Disputes

Win rates aren’t the sole indicator of success. Merchants should also consider metrics like ROI and dispute rates.

Solution:

• Track multiple KPIs, including dispute rates and the revenue impact of disputes.
• Focus on overall chargeback prevention, not just resolution.

Mistake #8: Not Working With Your Processor

Failing to work with your payment processor means missing valuable tools and insights.

Solution:

• Leverage your processor’s built-in fraud detection and chargeback management features.
• Maintain open communication to optimize your dispute strategy.

Mistake #9: Failing to Collect Chargeback Metrics

Merchants can’t evaluate their performance effectively without tracking metrics like win rates, chargeback ratios, and ROI.

Solution:

• Use tools like CB-Alert to gather and analyze chargeback data.
• Regularly review metrics to identify trends and areas for improvement.

Mistake #10: Neglecting Fraud Prevention Tools

Fraud detection and prevention tools are critical for mitigating chargebacks but are often overlooked.

Solution:

• Invest in tools like 3D Secure, Order Insight, Ethoca Alerts, Verifi alerts, AVS, and real-time fraud scoring.
• Continuously update your fraud prevention strategies to counter evolving threats.

Mistake #11: Failing to Address Root Causes of Merchant Errors

Operational issues like unclear policies or poor service often lead to legitimate chargebacks.

Solution:

• Audit your processes to identify common errors and areas for improvement.
• Train staff to handle disputes and customer interactions effectively.

Mistake #12: Lack of a Clear Chargeback Strategy

Merchants often reactively handle disputes without a defined plan, leading to inefficiencies.

Solution:

• Develop a structured workflow for addressing chargebacks, including prevention, detection, and resolution.

Mistake #13: Poorly Documented Transactions

Chargeback disputes rely on robust documentation, and poorly kept records weaken cases.

Solution:

• Maintain detailed transaction records, including order confirmations, shipping details, and customer communications.

Mistake #14: Overlooking Customer Refund Requests

Ignoring valid refund requests increases the likelihood of disputes.

Read more about chargebacks vs refunds here.

Solution:

• Respond promptly to refund requests and address customer complaints before they escalate.

Mistake #15: Not Partnering with a Chargeback Management Solution

Handling chargebacks in-house can overwhelm merchants, especially those who need more expertise or resources.

Solution:

• Use CB-Alert to automate processes, access real-time alerts, and implement fraud detection measures.

Why CB-Alert is Essential for Managing Chargebacks

CB-Alert provides merchants with the tools they need to combat chargebacks effectively:

• Real-Time Notifications: Proactively address disputes before they escalate.
• Fraud Detection: Block high-risk transactions to prevent disputes.
• Automated Workflows: Save time and reduce errors with streamlined processes that integrate directly with Ethoca and Verifi into one solution.
• Comprehensive Reporting: Gain insights into chargeback trends and performance metrics.

Protect Your Business from Chargeback Losses

Looking to protect your business from bleeding revenue? Reach out to our team at CB-Alert today to find out how we can help you from day one.