Chargebacks: Small Businesses Are Facing Growing And Unfair Costs

Customer and fraudulent chargebacks are frequent for small business owners. Here are a few tips on reducing the risk of chargebacks negatively impacting your business.


What Are Chargebacks? (AKA ‘Friendly Fraud’)

 The process starts when a customer contests a payment on their credit card and submits it to their bank to be cancelled, hoping for a refund.

The decision then lies with the consumer’s bank, which chooses to side with the customer or the retailer. If the bank sides with the customer, the retailer will have to reimburse the consumer and be charged an extra bank fee, tarnishing the enterprise’s credibility with its payment processor.

An estimate of over 600 million chargebacks will be filed this year at over 100 billion dollars. With fraud attempts snowballing, they can cost companies around 3.5 times their initial loss, according to this study.

Why Do Chargebacks Happen?

There are many reasons behind chargebacks:

  1. The customer experiences “buyer’s remorse”
  2. The customer isn’t patient enough to wait for a refund
  3. The customer forgot about or didn’t recognise the transaction
  4. The customer committed fraud

The major concern is that payment processors mostly take the customer’s side, with insufficient systems to filter out dishonest or fraudulent behaviour.

How Can SMEs Protect Themselves From These Growing Costs And Unfair Chargebacks?

With the growing number of chargebacks, businesses need to protect themselves.

Here are 3 essential steps to help:

1. Choose a Good App And Use The Right Software

Small businesses are turning to management software and apps to help them. Teaming up with a trusted payment provider such as SimplyPayMe is an excellent start to solving fraudulent chargeback problems.

Furthermore, using a mobile payment solution compared to a traditional bank is less expensive. These apps can help simplify your payment process whilst keeping your business safe.

2. Be Clear On Your Refund Policy

A good refund policy will state exactly how and when a customer can be eligible for a refund and for what reason. By doing so, banks and card providers have a reason to push customers to settle before starting the chargeback process.

3. Stay Alert!

Online payments allow for cardless transactions (also known as “card not present” or CNP transactions). Therefore, merchants should be vigilant to control inconsistent or unauthorised transactions.

Look out for:

  • Fake emails and incorrect security codes
  • Different shipping and billing addresses or shipping to uncommon or unoccupied properties
  • Shared shipping addresses for different customers
  • Big orders with next-day deliveries

Don’t Get Caught Out

With a new digital financial era in place come significant pros and cons. Unfortunately, chargebacks are very much a part of this process.

For this reason, it is crucial to set customer expectations from the start. Be vigilant in processing details and use modern software to oversee your enterprise.

Gary Prince is Chief Strategy Officer at SimplyPayMe, an award-winning global payments company whose mobile-based payment and business management solution is specifically designed and engineered to meet the growing demands of the underserved SME community.