Understanding and Avoiding Chargebacks

Causes of Chargebacks

The three most common types of chargebacks are as follows.

  1. Merchant Error: The seller bills for the wrong product or fails to issue an agreed upon refund.
  2. Criminal Fraud: A criminal uses a stolen credit card to make a card-present transaction or uses hacked information to make a card-not-present transaction.
  3. Friendly Fraud: The most common type, a customer decides it’s easier to contact the bank for a chargeback than call the merchant for a refund.

Read more on chargebacks911.com (not affiliated with Xola).

Setting Expectations

There are two unfortunate realities regarding credit card payments in this day and age:

  1. Chargebacks are occurring at an increasing rate every year.
  2. These disputes  are almost always resolved in favor of the cardholder. This is because it is the issuing bank who ultimately decides the result of all disputes, and it is usually in their best interest to make their customer happy.

Losing the occasional credit card dispute should be considered a cost of doing business and factored into your budget.

Two Important FYIs

1. If you issue a partial refund on a transaction, the cardholder can still dispute the full amount of the charge and win the full amount. For this reason Xola advises against offering a partial refund to an upset customer.

2. Your cancellation policy and/or terms of service will not have much impact on the resolution of a dispute. Although they are great for setting customer expectations, if a customer cancels and is not eligible for refund according to your cancellation policy they are still likely to win the dispute.

Avoiding Disputes

1. Communication

The best thing you can do to win a dispute is to avoid it in the first place by communicating calmly and clearly with with dissatisfied, tardy, or no-show customers. We recommend offering refunds when appropriate, store credit, coupons, or other assistance in rescheduling.

If you have a very strict no refunds cancellation policy, store credit is a great alternative that allows you to keep the revenue while leaving your customers feeling satisfied.

2. Documentation

The more of a paper (or digital) trail that you have, the stronger your case. If you have the slightest inkling your customer may be filing a chargeback for any number of reasons, make sure to maintain email correspondences, video footage, and any other kind of physical proof. Having the customer sign a copy of your refund/cancellation policy can be a strong piece of evidence.



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