Credit card companies bend head over heels to accommodate the needs of their customers, which is great for shoppers and credit card users but not always good for retailers when they have to issue chargebacks. But, in many ways, the excellent service financial institutions provide customers can benefit merchants as well – people are not as concerned about theft or other issues when shopping online, because they know their credit card companies will address any problems.

Credit card purchases start to become bothersome when people themselves abuse the policies of financial institutions. One recent study conducted by Trustev, a fraud prevention technology developer, suggested that while most people (76 percent of shoppers) believe it is immoral to falsely dispute online transaction charges, that still leaves as many as 18 percent who are not bothered by the practice and 5.6 percent that think it is actually okay to fraudulently issue chargebacks.

“Friendly fraud is a major part of return fraud — it’s when a customer returns an item that had nothing wrong with it, or disputes a charge for a purchase they made,” the report explained. “Five percent of respondents in our survey openly admitted to committing friendly fraud, which shows that customers may not understand or care about the difficulties merchants deal with — namely chargebacks.

People will dispute online transactions for multiple reasons. For some, they are intentionally trying to get away with fraud, for whatever reason – maybe they need the money or are simply trying to rip the seller off. Other times, these chargebacks may be more legitimate – perhaps the merchant did not offer a return policy, delivered a sub-par or damaged product or tried to give the customer the run around and ignored requests for returns or exchanges. While 4 percent of customers claimed to have outright lied about receiving a product, 7 percent exaggerated the condition of the item in the dispute.

Regardless of why the dispute occurs, chargebacks can be detrimental for the retailer in question. As Internet Retailer explains, when a chargeback occurs, the money paid to a merchant is reclaimed from the cardholder’s account. This means the merchant effectively loses the sale, but it can also incur extra charges and fines from the payment processor. Merchants need to be able to prevent chargebacks and disputes whenever and wherever possible, as letting them go rampant can damage their already thin margins.

Taking control of chargebacks

​Return fraud is a very real concern in the retail industry, with the National Retail Federation projecting that companies lost as much as $3.9 billion in the 2014 holiday season alone due to return fraud. Retailers cannot stop all instances of chargebacks and disputes, but they can work toward minimizing their occurrence.

The first step is getting to know more about the customer. By aggregating customer data from all channels to create customer profiles, retailers will be much more able to identify trends, both positive and alarming. Just as merchants can use customer data to fine-tune product recommendations, they can also use this information to track suspicious activity. The occasional dishonest shopper may still slip through the cracks, but better customer profiles can at least pinpoint buyers who are abusing chargebacks. Merchants can hold purchases of fraudulent customers and choose to address the matter before goods are sent out the door.

Of course, merchants can also help their case by bolstering their own customer service to avoid legitimate chargebacks. If retailers have stringent return policies (or do not allow returns and exchanges periods), they can expect to have more disputes filed against them, particularly if products arrive damaged due to poor packaging in the shipping process. A flexible return policy and great customer service not only reduces the number of chargebacks retailers potentially face, but also give merchants the ability to win back the customer – perhaps instead of a refund, they get store credit, which leads to another sale in the future.

Making the most out of a bad situation

At the end of the day, there is only so much that merchants can do about chargebacks. Tracking customer purchases and activity can be a great place to start, and better return policies are good for not only preventing disputes but also just for bolstering the overall customer experience.

But ultimately, part of the onus is also on credit card issuers and financial institutions to rethink their generous chargeback initiatives. As long as they continue to make it so easy for customers to dispute online purchases, return fraud will always be a concern for merchants. Until these programs are reconsidered, retailers just need to do everything in their power to close any gaps on their end.