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How Can Small Businesses Avoid Customer and Fraudulent Chargebacks

Chargebacks are becoming increasingly frequent for small business owners, leading to a weakening financial state. Heavy fees are imposed on enterprises, decreasing your credibility in the eyes of your payment processor. And for many SMEs, figuring out a way to manage chargebacks effectively can be challenging.

Firstly, what is a chargeback?

A chargeback, also known as “friendly fraud”, is when a consumer contests a credit card payment and submits it to their bank for cancellation. The decision then lies with the consumer’s bank, which can choose 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 additional bank fee.

According to a study, global chargeback costs will reach $117.47 billion by 2023.

Chargebacks occur for numerous reasons, such as 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, or 4. the customer committed fraud. In most cases, the payment processor will take the customer side, thus impairing the enterprise.

Essentially, card chargebacks are meant to protect consumers from unauthorised transactions, though they can cause damage when dealing with the wrong customers.

How can small businesses prevent wrongful or fraudulent chargebacks?

Unfortunately, fraud is widespread for small businesses; in this case, customers pretend to have not received the goods to avoid payment.

However, there are a few ways chargeback fraud can be prevented:

1 – Create a Solid Refund Policy

It is vital to have a firm refund policy noting your terms and conditions: how, when, and why a customer can return a product or abdicate a service, and strict requirements on when a customer can be eligible for a refund.

This policy is one of the best ways to fight chargebacks, encouraging banks and card issuers to ask customers to settle before requesting a chargeback.

2 – Be Vigilant

Online payments allow for cardless transactions (also known as “card not present” or CNP transactions). Consequently, merchants should be vigilant to prevent inconsistent or unauthorised transactions. A few essential elements to look out for are 1. differences in billing and shipping addresses or a shipping address to an empty property, 2. identical shipping addresses for different customer orders, 3. fake email addresses, 4. incorrect security codes or,  5. next day deliveries for big orders

3 – Use a software or application provider

Many more small businesses are now employing management software and apps to become more efficient. In truth, teaming up with a payment services provider willing to help you is an excellent start to solving fraudulent chargeback problems.

Also, using a mobile payment solution compared to a traditional bank is less expensive. For example, the Pay by Bank app charges 0.45% per transaction, whereas a debit card charges 1.40%. These apps can help streamline your payment process whilst keeping you ahead of the game.

Stay Ahead of The Game

With a new and modernised financial ecosystem comes both significant evolutions and difficulties. Chargebacks are very much a part of this process, being expensive and time-consuming, negatively impacting your business.

Setting customer expectations from the start is essential; being vigilant on your processing details and using modern software are all key to a well-prepared enterprise.

The key to fraud prevention is to be well-equipped and prepared.



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