What is the underlying cause of a chargeback? Why is a chargeback raised by a customer?
Is it possible to lower the chargeback ratio, as they ultimately derail your merchant’s business and revenue?
Chargebacks can be a frustrating and costly issue for merchants. A chargeback occurs when a customer disputes a transaction on their credit card and requests a refund. It can happen for a variety of reasons, and understanding these reasons can help businesses/merchants implement strategies that will help safeguard their business.
So, let’s take a look at the top ten reasons for a chargeback:
One of the most common reasons for chargebacks is fraudulent transactions. Fraudulent transactions occur when a customer’s credit card is used without their knowledge or authorization. This can happen as a result of stolen credit card information, phishing scams, or other fraudulent activities. If a customer discovers a fraudulent transaction on their credit card statement, they can dispute the charge and request a refund.
This reason can be further expanded into many other branches, such as:
- Refund delay- When a customer demands a refund from the seller, but is not satisfied with the response or has been experiencing a delay in response, might raise a dispute with the card issuer
- Lack of knowledge: If a customer is not tech savvy, they might technically reach out to their card issuer to return the money, instead of going to the merchant.
- Family Fraud: It is a standard practice for many to save their credit card information either on a merchant’s website or on their phones. So, many a time, a family member might use the stored information to make purchases without the customer’s knowledge. This might lead the customer to dispute those transactions and raise a chargeback.
- Cyber shoplifting: This is an intentional act by the customer to gain an item (usually, they are highly priced) for free. The customer purchases the item and waits for a few weeks to dispute the transaction by claiming they don’t recognize the charge thereby getting back the money and item for free.
- Buyer’s remorse: This chargeback is raised by the customer when they are unable to accept the purchase legitimately made by them. So, instead of accepting the expense, they tend to raise a dispute with the card issuer.
- Forgotten/Accidental subscription sign-up: The customer signs up for a free trial by entering their credit card details and ends up forgetting about the subscription charge, resulting in a chargeback.
Non-Delivery of Goods or Services:
Another common reason for chargebacks is the non-delivery of goods or services. Customers may dispute a charge if they paid for a product or service but did not receive it. This can happen if the product is lost in transit, if the delivery is delayed, or if the service is not performed as expected.
Dissatisfaction with the Product or Service:
Sometimes customers may not be happy with what they receive after making a purchase, so they can dispute the charge. This happens when the product or service doesn’t meet their expectations, or if there’s an issue with the quality. There are also cases where customers just change their minds about the purchase and want to dispute the charge.
Another reason for chargebacks is billing discrepancies. This can happen if there is a discrepancy between the amount charged and the amount the customer was expecting. For example, if a customer sees a charge on their credit card statement that is higher than they expected, they may dispute the same.
Subscription-based businesses may encounter chargebacks if customers thought they had canceled their subscriptions but were still charged. This chargeback happens if the cancellation process was not clear or the customer did not receive confirmation that the subscription was canceled. Sometimes, if the customer wants to stop a particular service, they might also raise a chargeback instead of directly reaching out to the merchant.
Technical issues can also lead to chargebacks. This can happen if there are payment processing errors or if there are technical issues with the website or payment gateway. For example, if a customer tries to make a purchase but the website crashes during checkout, and yet the payment still goes through. This may lead to a chargeback dispute.
Sometimes, there may also be errors during the credit card processing stage that can result in chargebacks. This can happen if the customer’s card is declined, if the payment is processed twice, or if there is a technical error during the transaction.
Merchandise Not as Described:
Customers may dispute a charge if the merchandise they receive is not as described. This can happen if the product is different from what was advertised or if there is a problem with the quality of the product.
Credit Not Processed:
If a customer is entitled to a credit but does not receive it, they may dispute the charge. This can happen if there was a refund that was not processed correctly or if the customer was promised credit by the merchant but did not receive it.
Finally, duplicate charges can also lead to chargebacks. This can happen if a customer is charged twice for the same transaction. This can be the result of a technical error or a mistake made during the payment processing stage.
Customers may dispute charges if they did not authorize the transaction. This could happen if the merchant processed a transaction without proper authorization or if the merchant used deceptive practices to obtain the customer’s authorization.
Nevertheless, while it is not completely possible to stop chargeback requests, they become easier to handle when one understands the reasons behind them. Because when a merchant gets hit with a chargeback, it is not only about the amount charged; they also need to pay substantial sums of fees, such as arbitration or dispute charges.
With the help of our Unified Dispute Management (UDM), you can help your merchants respond to chargeback queries on time and provide the necessary evidence to support the charge. UDM also assists your merchant to maintain their reputation and keep their payment processing privileges intact.
Get in touch with us today to know more about UDM and how it can help your merchants regulate, tailor and modernize their chargeback process and responses.