Believe it or not, chargebacks can occur on accident.
Friendly chargebacks result from cardholders filing disputes for misunderstood, legitimate purchases. These scenarios include:
- A family or friend used the card without telling the cardholder
- The cardholder forgot about the purchase
- There was a misunderstanding of return policies
Unfortunately, if the cardholder doesn’t realize the claim is unjust, your business could incur unfair losses. Due to bank associations’ policies and the chargeback protocol, it’s laborious for businesses to win these disputes, but not impossible.
The Obstacles You Face
As a business owner, you’re automatically at a disadvantage because:
- Banks favor cardholders, who are their customers
- Chargeback departments intentionally don’t investigate disputes beyond the evidence customers provide
- The process lacks clearly defined methodologies for investigating claims for less common forms of payment (such as online and mobile payments)
These disputes can have a negative impact on your business, including but not limited to:
- Increased reserves — Providers hold your funds to protect your business from future occurrences and themselves in case your business closes its doors; it means more money put aside instead of in your bank account
- Longer hold time on your funds — The deposit time frame for your funds can change
- Increased chargeback ratio — Businesses are typically expected to maintain a certain ratio with providers
- Cancelled merchant account — If your ratio exceeds 1 percent, you provider may take steps to shut down your merchant account
This may seem daunting. But, like we said earlier, if a customer files a friendly chargeback and doesn’t recant the dispute, it’s possible to win.
How to Battle Friendly Chargebacks
You have adequate means to win a dispute if you follow these best practices:
- Always collect a signature, even remotely
- Always verify the Card Security Code (CVV) for online and phone orders
- Confirm the Address Verification System (AVS) matches the billing address and ZIP code provided
- Only ship online orders to AVS-verified addresses
If you’re lacking any of the above, you’ll want to check with your provider to ensure you’re using every means of protection. And if you happen to have a provider that doesn’t offer these security precautions, it may be time to make a change.
Don’t let your provider’s shortcomings stop you from protecting your business. Do your due diligence to ensure every sale is secure.
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If you’ve ever fallen victim to these disputes, please tell us about your experience in the comments section below!