Chargeback disputes can feel like a frustrating hurdle for merchants. They eat up so much time and resources and can also have long-lasting effects on your business. Avoiding disputes isn’t just about keeping customers happy; it’s also about protecting your revenue, reputation, and ability to grow. Here are five reasons why staying ahead of disputes is worth your attention.
Low Win Rates for Merchants
Winning a chargeback dispute sounds great in theory, but the odds are often stacked against merchants. Even when you provide strong evidence, the process tends to favor the cardholder. That means many merchants end up losing their case and the revenue tied to it.
If you’re counting on chargebacks to recover lost sales, it can quickly turn into a losing battle. Instead of relying on a system that doesn’t work in your favor, it’s better to focus on preventing disputes from happening in the first place.
Merchants can leverage chargeback fighting solutions though these will often merely automate the counter process and will not increase the actual win rate. Industry standard win rates are around 20-25% for digital merchants and 25-30% for e-commerce merchants.
The Hefty Dispute Fee
Every chargeback comes with a fee, usually $15 to $20, whether you win or lose. So, even if the card network rules in your favor, you’re still out the fee. Over time, those fees add up fast.
For example, if you get 50 disputes a month, that’s $750 to $1,000 lost just in fees. That’s money that could go toward growing your business, but instead, it’s spent on a process that gives no guarantees of recovering your funds.
Reduced Revenue Percentage
Disputes don’t just cost you the sale, but they also eat into your revenue in other ways. You either have to pay for a third-party service to manage disputes, which takes a cut of your profits, or handle them in-house. Handling them yourself means dedicating time and staff to fighting disputes, which takes resources away from running your business. Using a third-party service means involving another business and exposing potentially sensitive information to an outside vendor (oftentimes these services will require access to your CRM & payment processor).
Either way, disputes end up costing you more than you think. They shrink your profit margins and make it harder to focus on serving your customers and growing your business.
Decreased Payment Authorization Rates
Banks keep a close eye on merchants with high dispute rates, and it can hurt you in a major way. Every time a customer disputes a purchase, their bank pays a dispute fee to card networks as well. For this reason, if the consumer’s bank thinks you’re high risk, they’ll be less likely to approve your transactions. That means more legitimate customer transactions get declined.
Imagine losing sales because customers can’t complete their purchases. On top of that, it damages your reputation and leaves frustrated buyers less likely to come back. Over time, this can create a big hole in your revenue that’s hard to fix.
Higher Processor Risk
When disputes pile up, payment processors start seeing you as high-risk. That can lead to some serious consequences:
- Higher processing fees: You lose the chance to negotiate better rates, so your costs go up. Most processors are unwilling to negotiate on fees with merchants on dispute monitoring programs.
- Additional fines: You could face penalties if you’re flagged for fraud monitoring programs. Fines from Mastercard and Visa’s dispute monitoring programs can go up to $75K per month.
- Processor termination: In extreme cases, your payment processor might drop you altogether, leaving you scrambling for alternatives.
These risks cost money and can threaten your entire business. Rebuilding relationships with processors or finding new ones can be a long, expensive process.
What Merchants Should Do Instead
Chargebacks can drain a business’s profits and damage its reputation. From the chargeback process itself to the fees and operational strain, every aspect makes running a business more challenging. Instead of focusing solely on how to dispute chargebacks, merchants should take proactive steps to prevent cardholder disputes and customer disputes from happening in the first place.
Here are practical steps merchants can take to protect their merchant accounts, minimize chargeback fees, and reduce the risk of chargeback fraud.
Provide Quality Customer Service
Great customer service is often the first line of defense against disputes. Many chargebacks happen because customers feel ignored or frustrated when they encounter issues. A friendly, responsive support team can resolve concerns before they escalate into a chargeback.
For example, if a customer’s package is delayed, a quick apology and a tracking update can make all the difference. Showing customers you care about their experience builds trust and reduces the chance of disputes.
Communicate Clearly
Clear communication can prevent many misunderstandings that lead to disputes. Make sure your policies, prices, and terms are easy to find and written in plain language. Customers should know what to expect before they make a purchase.
For instance, if you have a strict return policy, highlight it during checkout. If shipping takes longer than average, explain this upfront. Being transparent keeps customers informed and avoids surprises that could lead to disputes.
Ensure Accurate Order Processing
Mistakes in order fulfillment are a common cause of customer disputes. Double-checking every detail—from item selection to shipping address—can go a long way in avoiding issues.
Using tools like an Address Verification System (AVS) is a smart way to catch potential errors. AVS verifies the customer’s billing address, helping you avoid fraudulent transactions and reducing the risk of chargeback fraud.
Implement Fraud Prevention Measures
Chargeback fraud (when customers claim a legitimate purchase wasn’t authorized) is a growing problem for merchants. Investing in fraud prevention tools can save you time, money, and headaches.
Tools like AVS, 3DS and CVV verification and multi-factor authentication, can help verify the identity of cardholders and flag suspicious transactions. These steps protect your merchant account and reduce disputes caused by fraud.
Use Chargeback Alerts
Despite your best efforts, disputes can still happen. That’s why having a backup like chargeback alerts is so important. Chargeback alerts let merchants deal with potential disputes before they reach the payment processor, avoiding extra fees and reducing the stress on your business. By resolving disputes early, you can save money and lower your dispute ratio.
A lower dispute ratio directly improves payment authorization rates because banks see you as less risky. When banks don’t have to pay dispute fees, they’re more likely to approve your transactions. This means fewer declined payments and happier customers. Chargeback alerts also show that you’re actively managing risk, which helps protect your relationship with payment processors and keeps your business running smoothly. With chargeback alerts, you can move from reacting to problems to staying ahead of them, protecting your revenue and building trust with your customers.
The Bottom Line
Credit card chargebacks and the chargeback fees that come with them can hurt your business. Avoiding disputes is important for protecting your profits and keeping good relationships with your customers and payment processors. When you minimize disputes, you save time and money, allowing you to focus on growing your business instead of dealing with the fallout.
Chargeblast makes handling chargebacks easier by automating the process and sending real-time alerts about potential disputes, avoiding the potential fallout of high chargeback rates. Sign up today or book a demo to go more in-depth and see how our system works.
