Insights into Merchant Chargeback Protection

Various merchants become victims of fraudulent activities in the subscription business market. Chargebacks were introduced for customers as a last resort to get their money back in case of failed payments, transaction errors, unauthorized payments etc. Chargebacks are offered to reduce customer disputes.

However, many customers try to misuse this option. They wrongly accuse subscription retailers and ask for chargebacks. When customers file for chargebacks, retailers not only have to return their payments but pay penalties as well that hit retailers as financial loss and revenue drain.

Now, we will not spend more time in telling you about the damage that chargebacks cause. We all know that in detail. Coming towards your combat strategy—merchant chargeback protection. However, before we take you to the details of how to get protection against chargebacks, it is important to note that you are going to need specified platforms and tools for this. Also, first, you need to know various chargeback frauds that people do frequently in the market.

Also Read: Online Payment Frauds—Types, Challenges, Detections, & Preventions

Different Types of Chargeback Frauds

Your subscription business can be susceptible to the following chargeback frauds:

Friendly Frauds: It is initiated while the customer knows that he is delivered for what he paid. Such customers claim that they are not satisfied with the services being offered or the product delivered. Or sometimes, they come up with subscription cancellation issues.
Subscription Cancellation Disputes: Many customers file that they cancelled their subscriptions and are still being charged.
Free Trial Abuse: Some customers never had the intention of making a purchase rather they sign up for the free trial, then file a chargeback for they never authorized the charge and unsatisfactory services or products etc.
Unauthorized Use: Sometimes people get their card information or bank information stolen, and this information is used to subscribe. Later the owner of the account filed chargebacks for he was never a customer.

So, these are some of the frequently known chargeback frauds. Now, talking about strategies for merchant protection against chargebacks, you can opt for the following ways:

Pre-Transaction Chargeback Protection

At this stage, as a retailer, you will opt for a proactive approach to detect fraudsters and malicious activities before anything happens. And we can divide activities at this stage into three more sub-categories:

1. Fraud Screening

Even an ordinary tool can help retailers to do an initial check on the customer. Nonetheless, every subscription business integrates a payment gateway with the core subscription management platform for smooth payment processing. And any payment gateway can do this for you. It will help you verify the customer’s address, card security codes, and velocity of transactions. This initial check plays a role in identifying fraudsters at the very initial stages.

2. Fraud Scoring

Fraud scoring is the evaluation or assessment of the transaction to find the likelihood of a transaction or activity being fraudulent. Again, many payment gateways use AI and machine learning algorithms to find fraud scores. For instance, Stripe has a built-in fraud prevention tool named Radar. It uses machine learning to find the risk factor for fraud in a transaction.

Likewise, Authorize.Net offers a suite of fraud prevention tools, including a fraud detection suite that includes customizable filters, fraud scoring, and transaction pattern analysis.

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3. Customer-Centric Approach

One of the most important things that no subscription business can neglect is to stay close to your customer base. Whether it is customer care or support, you need to be always there for your customers. Strategize to offer your customers a personalized experience. When customers are at the centre of all your strategies, only then, you can expect to retain customers and avoid chargebacks. Make your payment policies and chargeback policies clear to your customers.

Also Read: The Ultimate Guide to Handling SaaS Failed Payments

Post-Transaction Chargeback Protection

The best thing to combat fraudulent chargeback is to go for pre-transaction policies and tools because pre-transaction activities are the best way to help you save finances. However, when a chargeback has been filed, then post-transaction chargeback protection will only help you avoid it in the future because the chances of getting your merchandise are staggeringly low. Also, in the SaaS market, it is somewhat entirely impossible. Coming towards chargeback protection for merchants in case of post-transaction:

1. Chargeback Alerts

Chargeback alerts allow you to address pending disputes so that you can prevent the filing of chargebacks. Also, Chargeback alerts can quickly reduce chargeback issuances by up to 20%. There are specialized tools for chargeback alerts as well.

2. Network Inquiry

Chargeback alerts allow you to just refund the payment rather than waiting for the customer to file for the chargeback. However, network inquiries offer you dispute resolution options.

Also, keep in mind that there is a difference between chargebacks and refunds. The simplest difference is chargeback is initiated by the customer, on the other hand, a refund is initiated by the retailer or the merchant also it does not cost a loss for the merchant side.

Most Chargebacks Are Preventable

Undoubtedly, chargebacks are a setback for subscription businesses, but they are mostly avoidable, and we are here to tell you how. First things first, you need to have a firm strategy and tools for pre-transaction and post-transaction chargebacks.

Also, new chargeback threats come every day, but you need to fight them back. Most chargebacks are preventable through effective communication and customer service. By providing clear and detailed product descriptions, addressing customer concerns promptly, and offering responsive support, businesses can minimize misunderstandings and dissatisfaction that often lead to chargebacks. When it comes to automated tools, then nothing can help subscription businesses more than reliable payment gateway integrations.

SubscriptionFlow easily integrates with Stripe, Braintree, PayPal, and many other payment gateways so that you can avoid all transaction fraud and implement your merchant chargeback protection policy. Schedule a demo for SubscriptionFlow integration with amazing payment processing platforms.