Did you just hear the term “chargeback?” Are you clueless about what it is? Maybe you are a business owner who revealed this additional obstacle on your path to prosperity. Or do you work in customer service, having just received a call from a frustrated customer who kept screaming “chargeback” in your ear? Read on! You are about to find out all about chargebacks, and why they take place.
What is a chargeback, then? Before understanding chargebacks, it is vital to note the difference between chargebacks and refunds. They are frequently confused, yet they are not at all the same. A refund is a return of money by the merchant (company) to the consumer (customer) willingly. A chargeback, on the other hand, is a forceful reversal of money from the company’s bank account to the customer’s bank account by the customer’s bank (called the issuing bank). This dispute is carried out after the customer files a complaint with his issuing bank about questionable charges from a company.
When a customer disputes a transaction, the issuing bank determines whether the dispute is valid before returning the money to the customer via the chargeback process. Almost always, customers are advised by the issuing bank to contact the company in question and complain before proceeding with a chargeback. This is when your customer service department may get that complaint call, and this would be the opportunity to come to terms with the customer and avoid any possible chargebacks. Whether through a refund or otherwise, it should be a priority to avoid them. If you don’t, you will lose a lot more money than the original charge due to fees and penalties.
Chargebacks were initially a part of the mechanism created for consumer protection and, while they are still used for their original purpose today, customers have also come to use them unethically. That is why you have to be prepared to counter chargebacks, as it is highly unlikely you won’t experience them in our modern world.
Of course, since chargebacks are designed for customer protection, they are also slanted toward the customer’s interest, not the company’s. For this reason, it is usually more difficult for companies to defend themselves and win a chargeback process. After all, your customer is also the bank’s customer, and the bank wants to keep their customer happy just like you. So, why would a customer decide to proceed with a chargeback?
Reasons for chargebacks
Listed below are the most common reasons customers threaten to make or proceed with making chargebacks:
1. Fraud or not
A fraudulent transaction is a logically solid reason for a customer to be contacting their bank for a chargeback. Imagine, out of nowhere, you discover your bank account is credited an insane amount of money. You have absolutely no idea about the company that charged you. You sit there trying to come up with some reasonable explanation for why you were charged.
Could you have purchased something and you do not remember? Did you pre-authorize this charge by using some service in the past? Does anybody else know your payment card details? If “no” is the answer to all of the above, then you are probably a victim of card fraud, and naturally, you want the stolen money back.
2. “Where’s my refund?”
Sometimes, companies make the mistake of promising the customer a refund by a particular date and time. As a customer, you imprint that date and time in your mind and expect the refund to be in your bank account exactly then. If the refund is not in your bank account at that date and time, you become concerned.
You call the company, yet they will probably tell you that they have already issued the refund, and nothing else can be done from their side. When in such an avoidable dead end, of course, customers may initiate the chargeback process out of concern for their money. If a chargeback is then made, your company encounters a double loss – the initial refund you made and the money lost due to the chargeback.
The issue here all along is the misunderstanding of the refund process. No matter how fast a company issues the refund, it is up to the banks and their policies to process this refund before it finally shows up in the customer’s account. So, customer service representatives, remember not to guarantee a specific date and time that the refund will be in the customer’s bank account. Why promise something that does not depend on you? You should inform the customer that it ultimately depends on the bank, but usually takes a certain period, say between 3 to 7 working days.
At one point, I initiated a chargeback process myself because my refund was taking longer than the company-promised “7 days.” Call after call, all I got was a bad attitude from customer service, which did not minimize my concern. When did I finally receive the money? After 33 days in total. Who birthed this redundant concern? The company, of course.
3. “Where is my product?”
This one is quite simple too. When you pay for something, you expect to have it. If you do not have it, you unsurprisingly want your money back. Makes sense, otherwise, what did you pay for? Quite often, this chargeback is made for goods that were supposed to be delivered, but have not been (at least by a specific date and time).
This is why as a company delivering goods, as in this example, you should have a clear shipping schedule and punctual delivery. I once had an encounter with a London-based company whose customer service was not even aware of the details of their shipping company. That was not at all reassuring, and let’s just say hope was lost that I would even see what I paid for.
4. “This is not what I ordered!”
A customer that orders a high-end laptop and instead receives a box of rubber ducks delivered to him is one that could potentially make a chargeback. This customer’s actions are justified. The former is an expensive electronic device of high value, while the latter is completely irrelevant. Unhappy customers can even release songs about you!
Due to such accidental situations, you should have a highly responsive customer service team and be as reachable as possible. If your customer cannot reach you, their next option is a chargeback. Mind you, the contrast does not have to be as extreme as in the example above. Some customers may go for a chargeback just because of a discrepancy in the color, size, or quality of the product.
5. Perhaps, it’s technical?
No matter how perfect your systems may be, you cannot avoid the possibility of technical issues. Nobody can. Your customer service can react to them swiftly though. If the specific technical issues cause unwanted duplicate charges for your customers, not reacting to such a situation fast enough may result in chargebacks. No wonder; who wants erroneous charges?
If something like that does happen in your company, the best move is to be transparent. Inform the affected customers about the charges as soon as possible, and provide refunds where necessary. Apologies should also be in order, and if they come with compliments, you can turn this situation around and increase your customers’ trust in you.
6. Very friendly fraud
Lastly, you surely may get those customers who abuse the system knowingly. Yes, those are the deeply annoying cases frequently associated with a customer emotion called buyer’s remorse. For example, the customer receives the product he ordered from your company, yet they claim they did not and file a chargeback. Or maybe, the customer signs up for a paid monthly subscription on your website, forgets, and gets surprised by the next monthly charge causing him to react with a chargeback.
You cannot avoid such case scenarios, unfortunately, and it helps no one if you lose your cool. Luckily, there are ways to counter friendly fraud, or in other words, cyber shoplifting.
Chargebacks are bad news for your company, but they do not have to be the end of your business. By having the necessary knowledge about chargebacks, you and your support team will manage them better. It is of utmost importance, however, in our modern-day world, to stay up-to-date with how the top banks work with chargebacks and keep up with the ever-changing policies. By being involved in this way, you will ensure you do not lose money, customers, or credibility.
Does your customer service team know what chargebacks are? Have you encountered your first few chargebacks recently and are concerned? I can help you become fully armed to defend your company against chargebacks. Reach out and become an expert!
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