For many eCommerce brands the increase in online customers has been a welcome outcome of the Covid-19 pandemic. With new customer segments shifting to online spending, the opportunity for brands to reach a greater group of people has accelerated, creating a significant increase in revenue opportunities. In fact, 84% of consumers shopped online more than before during the COVID-19 Pandemic. (McKinsey)
Whilst an increased volume of transactions on site is a positive thing, there is also an increased risk to businesses who face greater pressure on their systems to ensure fraud detection without causing negative financial impact.
Brands also face the unenviable task of having to accept the bank’s processes which ensures the ‘customer is always right’, penalizing the brand should a customer raise a query on a transaction made with their site. This process is known as chargeback.
What is chargeback?
A chargeback occurs when the cardholder queries a charge from a merchant with their bank that they do not recognise. Rather than contacting the business directly for a refund, the cardholder goes to its bank and requests their money back. Funds are immediately removed from the merchants account and temporarily re-imbursed to the consumer. If the business chooses to contest the dispute, the merchant then needs to participate in a series of defined and lengthy steps created by the card associations with the issuing and acquiring banks.
How does it work?
If a customer raises a query of a purchase with their bank, the acquiring bank will remove the funds from the merchants account and reimburse the cardholder with a temporary credit on their account. If the merchant chooses to fight the chargeback but loses, they will have to pay administration fees to fight the charge, plus the value of the original product and any shipping costs. On the other hand, if the bank rules that the evidence provided by the merchant has successfully refuted the chargeback, the bank will return the funds to the merchant’s account as a permanent credit, and the cardholder will see a charge for the original transaction posted again on their account.
Why is it important to reduce chargebacks?
Chargebacks can be a complex and expensive problem, and numerous merchants make mistakes when it comes to fighting chargebacks. Resolving a chargeback dispute can be lengthy so it is vital for eCommerce businesses to know their chargeback rights as a merchant.
A low chargeback rate is a key indicator of the strength of your eCommerce fraud prevention service and whether it’s able to detect legitimate or fraudulent checkout activity. There are a range of factors which can cause or impact fraudulent activity on your site, chargebacks are just one. A high chargeback rate has consequences for both the revenue generated by the site and your customer’s lifetime value.
Another reason it is crucial to reduce chargebacks is to avoid being placed in dispute monitoring programs set by Visa and Mastercard. If a merchant exceeds the monthly threshold of a 0.9% chargeback ratio or 100 chargebacks, they will be granted a four-month window by the card schemes to bring their chargebacks under control.
However, if the merchant’s monthly chargeback ratio increases to 1.8% or the number of monthly chargebacks amount to 1,000, the business will be assigned a high-risk merchant category code. The merchant would then be subject to paying punitive fees, costly periodic reviews, and being banned from accepting Mastercard and Visa cards entirely, which could have huge consequences for the business.
So how do you reduce chargeback?
Ensuring your eCommerce platform is covered by a fraud prevention solution plays a fundamental part in any successful web experience. A robust fraud tool will enhance a smooth and seamless online experience and help maintain positive relationships with banks and payment processors and give you the peace of mind that your brand and business is being protected.
As an eCommerce business, we understand the costs and challenges online businesses face from illegitimate customer activity, which is why we set out to design our own state of the art fraud platform. Our end-to-end fraud tool utilizes bespoke machine learning models, device intelligence, and a global database to catch known fraudsters and protect your eCommerce business from fraudulent disputes.
We also provide Chargeback Guarantee where we cover the costs for any transaction that results in a chargeback. Your business won’t have to worry about managing fraudulent disputes or submitting evidence, we will take care of the entire process.
THG Detect, our proprietary fraud solution was specifically designed to help eCommerce businesses boost revenue, increase customer retention, fraud protection and your brand’s reputation.
Having migrated a leading beauty retailer onto the THG Detect SaaS platform in February 2021, the business saw a significant reduction in their chargeback rates. For example, there was a steep decrease in the retailer's chargeback ratio of 3%, which at the time totalled a $500K loss of total sales in December 2020. After implementation, it was reduced to an all-time low of 0.1% in April 2021. For more information about how THG Detect positively reduced this leading beauty retailers' chargebacks, click to download here.
If you would like to understand more about how chargebacks could be impacting your brand, or for more information on THG Detect, please click here.