First, lets go through the flow of a success transaction.
1. Customer places an order in an online store
2. Supplier checks the inventory and contacts the shipping company to proceed with delivery
3. Customer receives the goods
Along the process, there is the possibility of human error.
1. Product details or customer address is incorrect
2. Supplier ships out the order just as the customer changes it
3. Supplier sends incorrect details to the shipping company
4. Shipping company fails to honor the customer’s requested delivery date
5. Duplicate billing or incorrect bill amount
6. Damaged items
Or fraud
1. The purchased item never arrives at the customer’s address
2. The item is significantly different and does not meet the buyer’s expectations.
3. Customer claims a non authorized purchase
So what happens when a customer is not happy?
Chargeback is a refund that consumers may initiate by contacting their bank, and filing a substantiated complaint regarding any debit item on their statement.
Generally, payment providers allow a maximum of 2% chargeback per month. If the merchant goes beyond this limit, the payment provider has the right to freeze all incoming payments. In some cases, the merchant will never get their money back.
The payment provider acts as a middle man to solve dispute issues:
1. Buyer files a chargeback with the credit card company
2. Credit card company contacts the payment provider
3. Payment provider holds the seller’s funds
4. Payment provider contacts merchant to resolve chargeback disputes
Some red flags that may indicate fraud:
1. The order is way more than the average sale
2. The customer makes additional orders without having received the first order yet
3. Billing address and shipping address are different
4. Multiple orders are shipped to the same address using different credit cards
Several ways to prevent chargeback
1. Contact the customer if you suspect an incorrect address or duplicate item
2. Only sell quality products and deliver on time
3. High level of customer service
4. Suggest dispute resolution such as a refund when managing customer complaints