How to Avoid Chargebacks on Stripe

I am basing this list of recommendations on my experience, and also on the advice of renowned financial institutions.

We will discuss:

• How to avoid chargebacks from happening
• A software program that can prevent chargebacks
• Reasons why customers file a chargeback
• The bad effects of chargebacks on your business

In the end, I am hoping that you can use these tips to improve your business processes, prevent chargebacks, and enjoy using payment processors with no worries about getting chargebacks filed against you. 

Key Takeaways

• You can avoid chargebacks by implementing rigorous business practices
• Chargeback results not only in financial loss but also loss of reputation
• Chargeback.IO can help you prevent chargebacks from occurring

How to Avoid Chargebacks

If you succeed in implementing the following tips, you do not run the risk of losing your credibility in the eyes of consumers and credit card payment processors. 

1. Make sure to use secure payment processors

You can avoid chargebacks by using reputable payment processors like Stripe and PayPal. These financial systems employ multiple ways by which they can authenticate the legitimacy of a transaction. 

Here are some examples: 

• 2-factor authentication 
• The card billing address and shipping address match
• Algorithm for determining user behavior
• Location matching

To some degree, I can say that payment processors have more security systems than credit card issuers.

Most card issuers only use a phone or SMS verification. However, they rarely offer sophisticated algorithms, like verifying the location of the card. 

2. Offer reasonable refund and return conditions

If customers feel they were deceived, there is changing their minds about it. The consumer wants his money back, and there is no backing out of this.

This can indeed be unfair, as there are customers whose expectations are unreasonable. That is why you need to have a clear, fair, and accessible return and refund policy. 

If a customer wants his money back, two things can happen: 

1. You are in the wrong and you offer a refund; this should prevent a customer from filing a chargeback
2. The customer is in the wrong and the chargeback case against you will not push through; the bank would not even entertain it

If your refund policy is unclear, it may seem to people that you are fraudulent. Bank representatives will feel the same way, and a chargeback will likely be ruled in the customer’s favor. 

3. Be clear with customer expectations

Customers expect many things, and most of these expectations come from what you say and show on your website. Below are some examples: 

• Shipping time – provide a reasonable timeline for shipment; do not make false promises
• Marketing – do not make it appear that your product is better or bigger than it is. Focus on your product’s strength but be honest at all times.
• Quality – do not exaggerate how sturdy your product is. For example, do not call it an unbreakable glass if it is not breakable. 
• Completeness – if you sell products that come with parts, ensure you send them all. Nothing makes a customer more frustrated than ordering a product he cannot use because there is a missing wheel, leg, screw, nut, bolt, etc.  

You can prevent chargeback cases against you if you only take the time to think like a customer.

It also makes sense that you start thinking about how you would feel if you were a customer. Always do your part as a seller, and no one will even find a reason to file a chargeback.

4. Use multiple customer service channels

Consumers are wary of businesses that they cannot contact. If they do not know how to reach you, they will immediately think you are a fraud and file a chargeback. 

This behavior is leaning towards panic, and the absence of your contact details is what causes it. To prevent it, you must have several customer service channels. Below are my recommendations.

• Use a chat system on your website; there are bots for this that you can program
• Use social media, especially Facebook, for people to reach you
• Add a phone number on your website

You must also add an email address. I understand that publishing email addresses can lead to spam. While nobody likes spam, it is better to be reachable and be spammed than to get a chargeback case. 

You can easily work on spam protection nowadays, such as blocking certain domains and email addresses, so this should not be a big issue.

5. Be transparent in who you are

Transparency simply means not hiding who you are. I am not saying that you should expose your face. In business, transparency refers to: 

• Telling people your location; city and country should suffice
• Providing contact details
• Having clear policies and procedures that customers can read
• Having active social media channels

The goal of doing all this is to create a personality for your business. It is also fundamental to establish trust and credibility. 

6. Use a chargeback alert system

Finally, you can prevent a chargeback by using “chargeback prevention alerts.” 

What it does is process a refund even before a case becomes a chargeback. It is an automated way of dealing with potential chargeback cases. 

The way it works is simple: you get an alert even before a payment made to you becomes a dispute. From here, you can decide what to do. At best, you can issue a refund, so the complaint does not evolve into a chargeback case.

The benefits of using this software are:

• Chargeback prevention
• Maintenance of your reputation, especially in the eyes of payment processors
• Avoidance of chargeback fees
• Reduce the likelihood of being branded as a high-risk merchant

One of the best tools out there to do this is Chargeback. io. 

With Chargeback.io, you pay per case, and you do not have to pay a monthly subscription to use the service. ‍

Click here to check it out. 

Reasons for Chargebacks on Stripe 

Customers file a chargeback through their banks, which Stripe honors, for the following reasons:

• Fraudulent charge
• Unhappy with the product or service they received
• They never received the item   

Let us discuss each one. 

1. Fraudulent transactions

Fraudulent transactions are instances when a scammer or fraudster uses someone else’s credit card to buy something. The real owner of the credit card only becomes aware of this transaction once he sees the bill. 

Fraud can only happen if the consumer’s financial details are compromised. Usually, this can occur if a hacker successfully penetrates a company’s database and gains access to personal information. 

If a customer files for a fraudulent transaction and can prove it, the most common solution is for a payment processor to suffer the losses. It means that you, the seller, will get paid, but only if you kept your end of the bargain.

The payment processor will also issue a refund to the consumer. 

2. Dissatisfied with product

Consumers will also file a chargeback if they are dissatisfied with the product, you sent them. A case like this can only happen if the item they bought is significantly different from what you listed. 

Here are some common examples:

• Your product page stated the item is authentic, but you sent a high-quality imitation; this is still counterfeit
• The product color is different from what they ordered
• The item is different; your listing showed a toy, but you only sent a battery
• You misrepresented your product

A good example of product misrepresentation is a swimming pool. If your product photos show 10 people in the pool the consumer would think it is a huge pool, only to find out that the actual product can barely three people. 

You will not win cases like this. Both credit card companies and payment processors like Stripe do not condone deceitful marketing practices. 

3. Item not received 

Finally, customers file a chargeback because they never received the item. If you did your part, a chargeback like this is often due to a misunderstanding. In most cases, it is not your fault.

Logistics companies can get delayed, and customers may not know about it.

There are, however, situations where you may lose a case like this. A good example is the holiday rush. People want to buy stuff online believing that they will get the item within 48 to 72 hours. If you made this commitment, you must fulfill it. 

My suggestion is to avoid making claims like this if you cannot stand by your word. A promise or commitment can be used against you. That is why it is always best to set proper and reasonable expectations.  

Another possible reason for this chargeback is that the item got lost in the mail, or the courier delivered the item to the wrong recipient. In any case, you must keep records of your shipment and use them as proof that you did your part and that you are not negligent. 

With appropriate proof that you fulfilled your end of the bargain, you will not lose the dispute. Stripe may cover your losses if you can prove you are not fraudulent. 

Summary: Customers file chargebacks mostly because of fraud or panic. You can avoid the first one by using secure payment processors. You can avoid the latter if you keep an open line between you and your customer.  

The Bad Effects of Chargeback on Your Business

Chargebacks, whether you win them or not, are not good for your business. It has many risks and will always have negative effects on your business. 

The most common consequences of chargebacks are:

• Loss of revenue; you lose money for paying chargeback fees
• Loss of reputation; if you get enough chargeback cases, payment processors won’t work with you anymore
• Loss of merchandise; a fraudster is not liable to send you back an item that he claims he did not receive even if you shipped it

Nothing good comes out of chargeback cases. It is not an issue of winning the case or not. A few cases here and there can lead to serious reputation issues. You may eventually end in the blacklist of a credit card or payment processing company. In the end, you may not be able to charge credit cards at all. 

Summary

Chargebacks will break your business. Do not wait for the time when banks and payment processors no longer trust you. 

At this point, I highly recommend that you give Chargeback.IO a shot. Visit their page and sign up for the free trial account.