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The Green Sheet Online Edition

September 09, 2019 • Issue 19:09:01

Chargeback analytics can turbo charge your business

By Suresh Dakshina
Chargeback Gurus

Ecommerce sales are on the rise. According to Digital Commerce magazine, businesses saw an estimated 15 percent rise in online transactions in 2018. This poses new competitive challenges to the ecommerce world. The growth in ecommerce has increased the cost per acquisition (CPA) for all online retailers.

Due to rising costs of operations and customer acquisition, ecommerce businesses must identify new ways to increase their return on investment. Businesses are reporting operations cost increases of up to 12 percent due to fraud, chargebacks and purchase returns. To score big in the ecommerce world, it's essential to run a tight ship. That means having full control over marketing, sales, operations, fulfillment and customer service departments.

The benefits of chargeback analytics

When it comes to making changes that yield unequivocal beneficial results, chargeback analytics are among the least known strategies and some of the lowest-hanging fruit. Companies that engage in chargeback analysis and then make operational improvements not only increase sales, but they also typically improve customer retention rate.

If you are selling a product or service in a highly competitive space, chances are most of your competitors are considering chargebacks merely as a cost of doing business. This represents an opportunity for ecommerce businesses to use the rich data chargebacks provide to understand their customers better; improve business processes and customers' journeys; and use competitive overtures to make more sales, increase profits and strengthen customer loyalty

Why ignoring chargebacks is dangerous

In addition, ignoring chargebacks incurs significant disadvantages. Here are three:

  1. Increase in fraud level: Fraudsters will repeatedly victimize merchants who ignore chargebacks – three to four times, on average.
  2. Lower customer retention rate: Up to 30 percent of chargebacks are born from merchant error. You can bet a tenfold (or greater) number of customers experienced the same issues as those who filed chargebacks, but didn't file chargebacks or contact customer support. They simply walked away and decided not to return.
  3. Higher transaction decline rate: Merchants ignoring chargebacks provide no incentive to issuers to approve transactions. Ignoring chargebacks might indicate admission of guilt from the issuer's perspective and lead to blacklisting merchants.

What chargeback analysis tells us

Working with rich data, chargeback analytics can help improve all functions of an organization, including operations, marketing, sales, finance, customer support, fulfillment and manufacturing. Here are key chargeback analytics you can benefit from:

  1. Chargeback analysis by fraud type

    Chargeback fraud types can be broken down into true fraud and friendly fraud. True fraud chargebacks happen when the cardholder is not aware of the transaction and did not authorize it, usually meaning the credit card was compromised. Friendly fraud happens when a valid transaction that was properly authorized is disputed by the cardholder either out of ignorance or out of a deliberate attempt to defraud the merchant.

    True fraud rates exceeding 10 percent can be detrimental to any business and will continue to escalate if ignored, since fraudsters operate on networks and tend to attack the same merchants multiple times before moving on. We have seen an increase of up to 20 percent within a short span of time in cases where the merchant ignored chargebacks. If a merchant using a fraud prevention tool still faces more than 5 percent chargebacks, it might be time to re-evaluate the tool or to optimize the security settings.

    Friendly fraud chargebacks are on the rise. Customers have high expectations for their card-not-present transactions, and merchants who fail to meet those expectations face a high number of friendly fraud chargebacks: 60 to 85 percent of chargebacks normally fall into this category. A rise in friendly fraud chargebacks could be due to vulnerabilities in customer service, fulfillment and marketing departments.

  2. Chargeback breakdown by merchant error

    Any chargeback that happens due to merchant error and could have been easily prevented is categorized as a merchant error chargeback. Some such errors that often trigger chargebacks are:

    1. Deceptive product or service (setting unrealistic expectations)
    2. Shipment error (not shipping products on time or tracking return shipments)
    3. Poor customer service (not resolving customer complaints or responding to calls/emails on time)
    4. Duplicate transaction/system errors
    5. Merchant not recognizable (the name on the credit card statement is not identifiable by the customer)

  3. Chargeback review by traffic source

    Ecommerce merchants don't use just one traffic source to generate sales. They use multiple channels, which can be a great strategy to increase sales but can also be detrimental if the end cycle of these traffic sources is not monitored closely.

    Merchants shouldn't just be looking at the sales numbers, but also should look at the refund rate and chargeback rate for every active marketing channel. Merchants should pay closer attention to traffic sources that have high chargeback or refund rates when compared to others.

    Merchants engaging in affiliate sales must monitor affiliate fraud level as well, especially when paying affiliates on a CPA basis. Affiliates might bring bad traffic to merchants by using deceptive marketing practices or running incentivized offers, which can greatly impact chargeback ratios. Merchants often don't realize that anything their affiliates say or advertise on their websites is the sole responsibility of the merchant. Ensure that your affiliates don't violate your advertising guidelines, and don't hesitate to block their traffic if they do.

  4. Chargeback customer contact analysis

    When a customer reaches out to a business to resolve an issue, listening carefully and promptly remedying the situation should be that business's sole aim. My company has found that only one in 10 customers will reach out to customer service to resolve an issue. The rest will just take their business elsewhere.

    Tracking chargebacks that come from customers who have reached out to your customer service department can be good analytics for improving your customer satisfaction rate. Also, determining the percentage of contacts that came via email or by phone can help show where improvements need to be made.

    When merchants force customer to keep products they're unhappy with, or offer multiple rebuttals to complaints instead of resolving them, those customers tend to develop a case of buyer's remorse and often go to their banks to request chargebacks. Tracking chargeback customer contact metrics will reveal a great deal of information about your customers and what they think about your customer service department.

  5. Transaction refund analysis

    The complexities of the card-not-present payment ecosystem are hard for consumers to understand. Expecting them to grasp the nuances of a transaction's Byzantine life cycle is unreasonable. When businesses process transactions, customer can see them in their online credit card provider portal or in their mobile app right away, but refunds can take up to 10 days to show up (depending on the issuing bank).

    This poses a challenge for merchants. When they issue refunds on transactions, they don't always let customers know it could take up to 10 days for the refund to appear in their banking portal or app. Some don't even notify customers about refunds.

    I've found that almost 40 percent of customers who opt for refunds end up calling their banks to file disputes. Since issuing banks do not see the refunds right away, they process the disputes on behalf of the customers, leading to double revenue losses for merchants. To avoid this, merchants who have issued refunds must notify customers of this delay and ask them not to dispute transactions.

A competitive advantage

Businesses digging deeper into chargeback analytics have regained their buyers' trust, greatly increased their customer retention rate and lowered their CPA by fixing operational inefficiencies.

Every merchant writing off chargebacks as a cost of doing business should rethink this strategy. Chargeback analytics are a great way to understand your customers, recoup business losses, improve operations, increase customer retention and beat your competition. If you don't have the time, resources or tools to look at the analytics, partner with a third-party provider who can help solve your chargeback puzzles while you focus on what you do best. end of article

Suresh Dakshina is co-founder and president of Chargeback Gurus. A pioneer in data analytics and industry-specific risk management, he is a certified ecommerce fraud prevention specialist and Certified Payments Professional. He understands first-hand the challenges that business owners face, especially when it comes to chargebacks and fraud. Contact him at suresh@chargebackgurus.com.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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