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Chargeback management: a tool guide for merchants

Chargeback management: a tool guide for merchants

Published: 28 December 2021 • Reading time: 4 minutes

Chargebacks are part of the Ecommerce management costs that fall directly on the income statement of companies. These have repercussions on other aspects, such as brand reputation, customer loyalty and shopping experience. Although their impact is difficult to quantify in advance, it is possible to reduce it with some precautions.

But what exactly are chargebacks? When can they occur and how should they be managed? In the next chapter we’ll answer these and more questions, shedding light on this complex issue that has become strategic to manage correctly.

Differences between disputes, chargebacks and refunds

To understand the meaning of chargebacks, we should start from the definition of dispute, which is the dispute of a payment made with a debit or credit card by a buyer on international circuits such as Visa and Mastercard, to name just two examples. The dispute may have a positive outcome for the cardholder, who will be returned the amount spent, or for the merchant, who will be left with the amount collected.

The credit or debit card chargeback is the financial movement on the circuit with which the issuer, i.e. the bank or company that issued the card, charges the acquirer. In the event of a negative outcome of the dispute, the acquirer can re-credit the amount to the merchant, otherwise the chargeback is charged to the issuer.

The refund corresponds to the return by the merchant of the amount spent by the buyer in case of:

  • a return,
  • failure to deliver the goods,
  • other reasons.

This operation exclusively involves the merchant and their customer and is part of the ordinary administration of an Ecommerce.

The handling of disputes, chargebacks and refunds involves costs that in some cases are unavoidable but, in others, can be mitigated if governed properly. Let's see together how to effectively manage an Ecommerce to limit the costs attributable to chargebacks.

Effective management of your Ecommerce to reduce chargebacks

Here are some tips to work on chargeback prevention for your Ecommerce and decrease their impact on your online store, while maintaining a strong shopping cart conversion.

Optimize the management of 3DS2 protocols

The implementation of the European PSD2 legislation and the SCA (Strong Customer Authentication) is progressively contributing to improving fraud rates, often however to the detriment of the conversion rate.

The introduction of systems such as Axerve Advice, which we talked about in depth in our whitepaper dedicated to Strong Customer Authentication and conversion rate in Europe in 2021, makes it possible to delegate the transaction risk analysis, i.e. the analysis of the risk of a payment, to a platform capable of effectively evaluating transactions, reducing the probability of a buyer’s strong authentication and better managing the exemptions provided for by the legislation.

Invest in fraud prevention

Cyber-crime and online fraud are a challenge for the entire Ecommerce ecosystem and to successfully deal with this issue, advanced prevention platforms must be integrated. Platforms such as Axerve Guaranteed Payment, which is specifically based on artificial intelligence and machine learning, reduce the risk of scams to the detriment of the merchant by offering high security standards and, at the same time, reimbursing 100% of any unidentified fraud.

The reduction in the percentage of fraud suffered by an Ecommerce not only leads to a decrease in fraudulent chargeback, but it also reduces costs and helps improve the reputation of the store, decreasing the customer churn rate towards the competition.

Moreover, by having more security in your Ecommerce it can become easier to spot what is called “friendly fraud” or “chargeback fraud”, which refers to when customers buy products online and then request chargebacks on purpose in order to get refunded without returning the items, therefore taking advantage of the Ecommerce merchant.

Request confirmation for payment plans

If you offer subscription services with a free trial period, let the customer choose whether to upgrade to the paid plan once the free trial is over. The automatic activation of services that provide for recurring payments can affect the quality of the customer experience, especially if not clearly communicated in the customer's first onboarding phase.

It is therefore better to make the transition clear to the customer from the start, perhaps risking a lower conversion in the first instance. However, this works in favor of the acquisition of customers who are certainly interested in the long term.

Dedicate resources to the analysis of orders

Fraud prevention platforms are an excellent tool for reducing chargebacks but, especially in the face of high volumes of orders, it is good to consider relying on personnel that is specialized in order analysis.

The in-depth activities of specialists, on some orders identified as fraud or as potential risk, can help reduce costs and identify false positives, aka transactions that are apparently fraudulent but in reality genuine, increasing the effectiveness of the entire prevention process.

Ecommerce security in the first place

Despite the constant evolution of the Ecommerce offer for fraud prevention tools, cybercrime is constantly increasing all over the world and with it the chargebacks that weigh on the income statement of companies.

The adoption of effective contrast measures and the integration of fraud prevention solutions able to protect you and your customers, by better managing the 3DS2 protocols and reducing the impacts of malicious activities on your business, can be a differentiating element to be competitive in the context of online sales.

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