Do you have a refund policy at your e-commerce business?
A refund policy might seem to encourage customers to return purchases and claim refunds. But not having one invites something much worse - a chargeback, which many people confuse chargebacks with refunds.
While chargebacks and refunds both reimburse the customer, their similarities end there.
For the reasons we will cover in this article, you would rather the customer request a refund than a chargeback. In this article, you will also learn how to avoid chargebacks in your online store in Kenya.
Let's get to it.
A chargeback is a repayment of a charge made on a customer's credit or debit card. It results from a customer's dispute with their bank against a charge on their card.
A refund, on the other hand, is a repayment. It is a reimbursement you make to a customer for a purchase they made but which they now want to cancel.
A reversal revokes a payment, which can be at the customer's request or upon realising that the item ordered is out of stock. You may also reverse a payment if the payment gateway fails to obtain authorisation from the customer's bank.
Reversals have the best outcome for both customer and merchant, but more so for the merchant who does not have to incur shipping costs or chargeback fees.
Both refunds and chargebacks are initiated by the customer and return funds back into their account. Their main difference is that the customer's bank enforces a chargeback while you, the merchant, makes a refund.
With both chargebacks and refunds, you lose the sale. But with refunds, merchants retain control of the process and can actually set the rules, like a time within which a customer can request a refund or a condition that a refund can only be granted if the product is returned in saleable condition.
You can also offer the customer a voucher, discount on their next purchase, or other incentive so the customer can keep the shipped product. All these are ways to reason with the customer and avoid paying refunds and losing the sale.
With a chargeback, however, you don't control the process. You will usually lose the shipped product, too, as customers have no incentive to return the product.
Chargebacks usually imply that a customer's card was charged without their knowledge. It can also be because the order shipped well past the promised date.
An example is when a customer buys something for a time-sensitive event, like a birthday party, anniversary celebration, or wedding. This is why chargebacks carry serious reputational risks for your business besides the fees and the potential loss of the product itself.
Besides a dent in your standing in the eyes of the customer and the fees they attract from your bank and payment gateway, chargebacks also flag your business as high risk, which the bank or payment gateway may choose to insure against with a higher transaction fee for future payments.
Chargebacks are usually difficult to deal with because of consumer protection laws that default to the side of the consumer. The onus is on you, the merchant, to prove that a chargeback request is unwarranted. The customer only needs to raise a dispute with their bank.
Most merchants do not bother challenging chargebacks because the success rate for them is low. The problem with that is customers who succeed with the first chargeback request, especially if the request was uncontested, can abuse the right and make more requests.
That brings us to a type of chargeback that can doom your business if you don't put safeguards in place:
A friendly chargeback is where a customer makes a purchase only to dispute the payment after receiving the goods. It is a premeditated act in which the customer intends to keep both the product and the chargeback.
In effect, a friendly chargeback is a theft by the customer. This is why it has been called cyber shoplifting. It's now feared that the majority of chargebacks are friendly fraud, especially now that card-not-present purchases enable customers to shop anonymously.
Friendly chargebacks are terrible, but they don't represent the worst type of customer for your e-commerce business. This next one is:
A double refund chargeback is where the customer requests and collects both the refund and the chargeback. It is the worst scenario where you may repay the customer twice - through the refund and the chargeback, and lose the product if the customer holds on to it.
Not just that, you will also bear the cost of the chargeback fees and suffer reputational damage.
Usually, double refund chargebacks occur when a customer requests a chargeback and a refund simultaneously. A customer may also request a chargeback if they don't receive a quick response to the refund request.
Refunds are more closely related to returns, which the merchant and the customer must agree to. If it's a software product or service that's not physically supplied, the customer submits a complaint and requests a refund, which the merchant reviews.
While you would rather have refunds, returns are a fact of e-commerce. And where a product is returned and no replacement is shipped, the customer has to be refunded.
Some of the reasons why products are returned in e-commerce include:
The problem is that some customers don't realise the effects and material repercussions of refunds and chargebacks on your business.
Even some customers who end up making double chargeback requests don't mean any harm by it. They are just looking for recourse and think that raising the issue with the merchant and their bank improves their chances for a successful resolution.
So your job is to make it easy for customers with genuine grievances about their purchasing experience to request refunds. Ensure your refund policy is clearly visible to customers, not hidden in small print on the website footer.
And when dissatisfied customers raise refund requests, respond to them timeously. You will force them to request a chargeback if you make them wait days before they see your response to their query.
A plainly written refund policy will reduce the number of customers who feel they have to file a chargeback request with their bank because they don't have any other way to get heard.
Here are other ways you can prevent chargebacks:
Judging quality is notoriously difficult for online shoppers with products whose quality you have to feel with your hands. Some merchants also struggle to communicate their products' quality, and customers often get disappointed when what's shipped does not match their expectations.
Use better quality materials when making your products. If you are a reseller, source your products from reliable suppliers. Before you stock an item, test its quality first. If possible, use the product yourself to ascertain the fairest price you can sell at vis-a-vis its quality.
Sometimes shoppers are not given the information they need to choose items when shopping online. They can't try a product and won't be sure it will fit if you don't give them all the sizing information they need. The same applies to dimensions and exact colour shades.
Images after often all the customer has to decide if an item is to their taste. So you want to your product images to be as clear and detailed as possible.
If you are using models, take images in different poses and angles to help the customer visualise how the product will look on them or in their home. It's also not a bad idea to add a video where possible.
A product that does not reach the customer in one piece represents a loss to your business. The cost falls entirely on you. To ensure this does not happen, take extra care when packing items for shipping so they can survive possible rough handling during transportation.
Double-check to ensure the right packages are sent to customers. Besides delivering products to the wrong people, you can also easily ship incomplete orders if you don't review shipments before they head out.
You don't want new customers who recently signed up to cancel their subscriptions. But you would rather a customer cancels than request a chargeback with their bank.
It's common with software products and digital subscriptions that buyers simply decide it's not what they expected. Again, this could be because your product descriptions were poorly written or you oversold the product, claiming benefits it cannot deliver.
The IntaSend Payments plugins for Shopify and WooCommerce simplify the checkout process and lets you accept M-Pesa, Visa, Mastercard, and Bitcoin as payment methods. We have designed our software to simplify the checkout process and give your customers in Kenya the payment methods they want to use.