Dispute Best Practices for Recurring Physical Goods

Sydney VaccaroPhysical GoodsLeave a Comment

Dispute Best Practices for Recurring Physical Goods
Because of the susceptibility to disputes, it is important for recurring merchants to be aware of cardholders motives and best practices for preventing disputes.

The recurring billing model is great for merchants. There is a reason that so many companies have either adopted the model or built their entire business around it. Unfortunately, the same factors that make the model great also put it at risk for disputes. Because of the susceptibility to disputes, it is important for recurring merchants to be aware of cardholders motives and best practices for preventing disputes. We will go over some of the best practices for physical good subscription transactions and how to avoid disputes.

Why Recurring Physical Good Merchants Get Disputes

There are three types of fraud that merchants face when it comes to disputes:

  1. Chargeback fraud is when a cardholder is trying to gain the transaction amount back through the dispute process while still retaining the goods or services.
  2. Friendly fraud is when a cardholder disputes a charge with no malicious intent. Instead, it is by a simple mistake or forgetfulness.
  3. True fraud is when a stolen credit card is used to make a purchase then the true cardholder disputes the charge.

Recurring physical good merchants are faced with all three of these fraudsters, but there are some prominent cardholder behaviors that these merchants need to be aware of.

The first is chargeback fraud forgetfulness. These are customers that have been meaning to cancel the subscription but forget to. Instead of trying to return the merchandise or contact customer service, they just dispute the charge. Keep in mind that usually, disputing a charge is an easy phone call or a few clicks on an issuing banks website.

The next is friendly fraud forgetfulness. In this situation, the customer is not disputing because of malicious intent. It could be that the cardholder did not recognize the merchant descriptor, panicked thinking the charge was fraudulent, then disputed the charge.

It is important to look at disputes in this way. Taking a look beyond just a reason code and to actually think about the motive and situation of the cardholder when they disputed the charge. This helps creates the full picture for your company when creating responses or trying to solve dispute problems.

Dispute Best Practices for Recurring Physical Good Merchants

Here are the dispute and transaction best practices for physical good subscription merchants:

Send Reminder Emails

No cardholder likes a surprise charge on their card. For subscription merchants, charging on the agreed date without a warning or reminder seems like a way to prevent churn but this can easily cause disputes. By sending a reminder email a couple of days before the recurring transaction gives cardholders a heads up to expect the charge when it hits or gives them time to cancel. This helps prevent both friendly fraud and chargeback fraud.

Reroute Shipments

When a physical good purchase is disputed merchants run the risk of losing both the merchandise and the transaction amount from the sale. By staying on top of disputes as they come in merchant have the chance to reroute shipments or stop the product from being fulfilled if it hasn’t yet shipped. This stops the loss of the merchandise from a disputed charge.

Clearly Explain Terms and Conditions

Lay everything out as clear as possible for the customer when they sign up for the subscription. Visa’s guidelines when setting up recurring transactions is to obtain consent from the cardholder and include the following:

  • Transaction amount or minimum/maximum transaction amount if the transaction may vary
  • The frequency of the recurring charges
  • Duration of time that cardholder permission is granted
  • Retain a copy of the cardholder’s consent for the duration of the recurring services and provide a copy if requested by the issuer

Obtain all relevant card payment details to complete the transaction:

  • Cardholder name and billing address
  • Card type/account number
  • Card expiration date
  • Card Verification Value 2 (CVV2)

Customer Service is Key

Customer service is an important part of preventing disputes. Frustrating or unresponsive customer service can turn cardholder to disputing a charge instead of working with the merchant. Visa recommends recurring merchants:

  • Provide your customers with a toll-free phone number, email address, and/or easy to find (and use) online procedures for canceling recurring transactions.
  • Train your sales and customer service staff on the proper procedures for processing recurring transactions, as these transactions are particularly customer service sensitive.
  • Fully disclose all necessary transaction terms and conditions.

Clear Merchant Descriptors

Merchant descriptors are a great line of defense against customer disputes. A merchant descriptor is what appears on the cardholder’s statement to explain what the transaction is. If your merchant descriptor is not clear or easily recognizable to the cardholder it could be causing disputes. Make sure to always display the recognizable company name instead of the legal name. Along with a recognizable company name, include a way for cardholders to communicate with you. This could be your customer service number or email to make it as easy as possible for cardholders to reach out with questions or concerns.

The recurring billing model is great for merchants. There is a reason that so many companies have either adopted the model or built their entire business around it. Unfortunately, the same factors that make the model great also put it at risk for disputes. Because of the susceptibility to disputes, it is important for recurring merchants to be aware of cardholders motives and best practices for preventing disputes. We will go over some of the best practices for physical good subscription transactions and how to avoid disputes.

Why Recurring Physical Good Merchants Get Disputes

There are three types of fraud that merchants face when it comes to disputes:

  1. Chargeback fraud is when a cardholder is trying to gain the transaction amount back through the dispute process while still retaining the goods or services.
  2. Friendly fraud is when a cardholder disputes a charge with no malicious intent. Instead, it is by a simple mistake or forgetfulness.
  3. True fraud is when a stolen credit card is used to make a purchase then the true cardholder disputes the charge.

Recurring physical good merchants are faced with all three of these fraudsters, but there are some prominent cardholder behaviors that these merchants need to be aware of.

The first is chargeback fraud forgetfulness. These are customers that have been meaning to cancel the subscription but forget to. Instead of trying to return the merchandise or contact customer service, they just dispute the charge. Keep in mind that usually, disputing a charge is an easy phone call or a few clicks on an issuing banks website.

The next is friendly fraud forgetfulness. In this situation, the customer is not disputing because of malicious intent. It could be that the cardholder did not recognize the merchant descriptor, panicked thinking the charge was fraudulent, then disputed the charge.

It is important to look at disputes in this way. Taking a look beyond just a reason code and to actually think about the motive and situation of the cardholder when they disputed the charge. This helps creates the full picture for your company when creating responses or trying to solve dispute problems.

Dispute Best Practices for Recurring Physical Good Merchants

Here are the dispute and transaction best practices for physical good subscription merchants:

Send Reminder Emails

No cardholder likes a surprise charge on their card. For subscription merchants, charging on the agreed date without a warning or reminder seems like a way to prevent churn but this can easily cause disputes. By sending a reminder email a couple of days before the recurring transaction gives cardholders a heads up to expect the charge when it hits or gives them time to cancel. This helps prevent both friendly fraud and chargeback fraud.

Reroute Shipments

When a physical good purchase is disputed merchants run the risk of losing both the merchandise and the transaction amount from the sale. By staying on top of disputes as they come in merchant have the chance to reroute shipments or stop the product from being fulfilled if it hasn’t yet shipped. This stops the loss of the merchandise from a disputed charge.

Clearly Explain Terms and Conditions

Lay everything out as clear as possible for the customer when they sign up for the subscription. Visa’s guidelines when setting up recurring transactions is to obtain consent from the cardholder and include the following:

  • Transaction amount or minimum/maximum transaction amount if the transaction may vary
  • The frequency of the recurring charges
  • Duration of time that cardholder permission is granted
  • Retain a copy of the cardholder’s consent for the duration of the recurring services and provide a copy if requested by the issuer

Obtain all relevant card payment details to complete the transaction:

  • Cardholder name and billing address
  • Card type/account number
  • Card expiration date
  • Card Verification Value 2 (CVV2)

Customer Service is Key

Customer service is an important part of preventing disputes. Frustrating or unresponsive customer service can turn cardholder to disputing a charge instead of working with the merchant. Visa recommends recurring merchants:

  • Provide your customers with a toll-free phone number, email address, and/or easy to find (and use) online procedures for canceling recurring transactions.
  • Train your sales and customer service staff on the proper procedures for processing recurring transactions, as these transactions are particularly customer service sensitive.
  • Fully disclose all necessary transaction terms and conditions.

Clear Merchant Descriptors

Merchant descriptors are a great line of defense against customer disputes. A merchant descriptor is what appears on the cardholder’s statement to explain what the transaction is. If your merchant descriptor is not clear or easily recognizable to the cardholder it could be causing disputes. Make sure to always display the recognizable company name instead of the legal name. Along with a recognizable company name, include a way for cardholders to communicate with you. This could be your customer service number or email to make it as easy as possible for cardholders to reach out with questions or concerns.

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