Practical Ecommerce

Credit Card Chargebacks

It seems like only yesterday we were gearing up for a new holiday shopping season. Alas, a plethora of shoppers seeking competitive pricing, free shipping and prime customer service is here. We’ve struggled to work out all the kinks in our shopping cart solution and backend system, so we can fulfill orders promptly. However, one thing that we may have overlooked is the potential of chargebacks.

Designed to protect the cardholder

Chargebacks are designed for credit card holder protection. They allow cardholders to refuse payment due to fraudulent use of accounts, as well as non-receipt of goods. In some cases merchant banks approve chargebacks due to damaged items or items that were not as described in catalogs or online store pages, regardless if the merchandise was returned. The practice is sometimes abused by online shoppers, in hopes to get a product for free, but many times inquiries are made out of forgetfulness or ignorance.

The majority of merchant banks charge fees for chargeback inquiries — circumstances whereas cardholders don’t recognize a charge and file a dispute. Even if the end result is in your favor, you still may be imposed with fees, commonly ranging from $10 to $25 per inquiry. These charges can add up to quite a bit during the holiday shopping season, and there are steps you can take to help cut down the number of inquiries made against your account.

  • Be clear on your website, especially during and after checkout, how the charge will appear on the consumer’s credit card statement. A post-order follow up email (sent 1-2 weeks later) can serve as a good reminder.
  • Make sure your business telephone number is included on the charge that appears on the consumer’s credit card statement. Ideally, reserving a toll-free number specifically for such inquiries will garner more calls, but less reports to actual banks.
  • Do not charge credit cards for items that are pre-ordered. Instead, charge the card when the item arrives in stock and is shipped.
  • Promptly void mistaken charges, and credit accounts for returned items. If you wait too long, the cardholder may think you plan to keep the money and will use the easiest method to obtain credit. Be sure to explain that credits may not appear on statements immediately — always provide a transaction number as proof.
  • When sending follow up emails, be sure to invite customers to contact you with any issues. This statement alone may save you time and money. Consumers are more apt to contact you if they feel you are approachable.
  • Never ignore a request, and answer each in a timely manner. Respond to rude complaints, preferably with a polite phone call. This practice can often tilt results back into your favor. Some shoppers jump the gun because of past, negative experiences. Prove to them we’re not all bad guys.

While there are many more practices you can follow, such as using fraud-protection services, these key points can help define a good policy for preventing disputes. With the credit card practices of making disputes easier on the consumer (i.e. putting a quick link right on the online statement), your job is to keep your customers informed of policies and to put them at ease.

Pamela Hazelton

Pamela Hazelton

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  1. Legacy User October 9, 2007 Reply

    Thank you for this article Ms. Pamela.
    Good reminders that sometimes, a customer's reaction isn't personal – it was from a bad experience with someone else, and to use a soft touch.

    While I do not use a separate merchant acct myself at this point, it is also a good reminder on the chargeback fees!

    — *Beth*

  2. Legacy User October 26, 2007 Reply

    It's also good to compare the billing and shipping info and call if the shipping info differs from the billing info. Checking the IP address where the item was ordered also helps.

    — *Michelle Greer*

  3. Legacy User December 11, 2007 Reply

    Mobile commerce merchant services that allow customers to pay with a cell phone can help reduce chargebacks, provide greater security and result in less than 0.03% chargebacks.

    — *Kris Beuhler*

  4. Legacy User March 25, 2008 Reply

    Greater security and also it is good to compare the billing…..

    — *madhu*

  5. wsports February 25, 2009 Reply

    Verifying customers phone records on sites like anywho or is also useful.