Chargebacks are put in place to protect customers and restore their confidence in the card payment system, especially with the boom of eCommerce. However, chargebacks have become a source of headache for merchants who have to pay $3.75 for every $1 lost to chargebacks. If not well-handled, this cost could run into hundreds of thousands and even millions for large companies.
While finding a band-aid remedy for this recurring situation is easy, it is best to approach it from a deeper perspective. Only then can a lasting solution be found. This article takes an in-depth dive into the psychology of chargebacks and how understanding customer behavior and building trust with users are a more lasting solution.
What is a chargeback
A chargeback occurs when a card payment for an item is returned to a customer after a successful dispute resolution. It is when a credit or debit card transaction is reversed due to a dispute on the charge. If the chargeback request is successful, the buyer gets their money back without returning the item. The reasons for chargebacks are disputed transactions, mistaken transactions and fraudulent activities.
An example of a disputed transaction is when a customer gets a wrong or low-quality item. The buyer can dispute the transaction and ask for a chargeback. In the case of a mistaken transaction, a guardian might ask for a chargeback if a minor mistakenly places an order from their device. Lastly, fraudulent activities like unauthorized access to a customer’s credit or debit cards can warrant a chargeback.
What is chargeback fraud
Chargeback fraud refers to all shady activities linked to a chargeback request. As good as the concept of chargebacks are, some users take advantage of the consumer protection system and commit fraud with chargebacks. This type of chargeback fraud happens when a buyer wants to swindle a merchant by getting a free product.
Another type of chargeback fraud is when an unauthorized user steals a card, uses it to make a purchase, and then requests a chargeback. The thief gets the item and the payment is returned to the legitimate owner’s account.
The psychology of chargebacks
Understanding the psychology of chargebacks has become necessary as merchants have discovered that simply contesting a chargeback claim is insufficient to win a dispute. This is because the system’s default setting is to protect the buyer and most settlements are in the customer’s favor, regardless of the facts the merchant presents.
Sellers now know that in addition to facts, they also need to understand the psychological variables that lead to chargeback disputes on the part of the customers. Knowing how the customer thinks at each stage leading to a dispute goes a long way in preventing and controlling chargebacks. Hence, understanding consumer behavior and building trust with your clients are far more effective ways of managing chargebacks.
How to understand customer behavior
Genuine chargeback claims come from a place of dissatisfaction. Customers don’t just wake up and decide to claim a chargeback; certain occurrences during the transaction have brought them dissatisfaction. When you understand why your customers behave the way they do, you will manage chargebacks better.
Understanding your customers implies being familiar with their needs, wants, desires and even their dislikes (in the case of managing chargebacks, especially their dislikes). It means understudying every stage of their customer journey. The following are ways to understand customer behavior.
Empathy is a core aspect of understanding customer behavior. If you approach customers from a strict view of business gains, you will relate with them without empathy. This attitude will not only make you lose customers, it will increase the rate of chargeback disputes. Empathy lets you set aside your bias and assumptions and understand exactly what your consumers are going through.
Here are ways you can develop empathy for your customers:
- Be conscious of your biases and don’t let them affect your customer relations
- Be genuinely concerned about customer satisfaction
- Take note of your customers’ vocabulary
- Listen to their grudges
- Let customers know you care about them
- Be patient
Conduct a consumer behavior analysis
A consumer behavior analysis is an activity that gives you a framework for gathering, analyzing and utilizing consumer data meaningfully. This exercise is one of the first steps in understanding your customers. A consumer behavior analysis will open your eyes to how customers interact with your product and brand. With it, you get an insight into how your users behave as well as what motivates and influences them.
The following are steps to take when conducting a consumer behavior analysis:
- Have a clear definition of your business goals and outcomes
- Recognize your main audience segments
- Take note of critical paths in the buyer’s journey
- Determine where you’ll get your data
- Carry out your analysis
- Put your findings into action
- Evaluate and repeat the process
The data you get from this analysis will enable you to make decisions that will improve your products and services, reducing the probability of chargeback requests.
Practice social listening
Social listening or social media listening is the act of monitoring social media channels to identify and assess what people (especially your customers) are saying about your products and brand. This practice enables you to track each mention of your brand in real time.
A solid social listening strategy lets you understand what customers and prospects think about your brand and products. You get to know their pain points and their expectations of your brand. Conversely, it also enables you to learn what they think about your competition.
If well-utilized, the data you get from social listening can boost your marketing strategies and reduce chargeback claims. For example, when clients complain about your products or delivery process, it’s your cue to look for ways to solve those grievances before they escalate to chargeback claims.
The following are steps to take in social listening:
- Monitor multiple social media channels for mention of your brand or product
- Analyze the information you have collected during the monitoring
- Respond by utilizing the insights to develop better strategies
When you practice social listening and use the insights to create better strategies and customer service, you improve your brand perception and limit the occurrence of chargeback claims.
How to build trust with your users
Building trust with your clients is another way of approaching chargebacks from a psychological angle. When you build trust with your customers, they will know that you take their satisfaction seriously and will not request chargebacks unnecessarily. However, building customer trust does not come easily; it involves a lot of work and patience. The good news is that the reward makes the work worthwhile.
To build trust with your customers, try the following tips.
Tell your customers your story
Everyone loves a good story, particularly one they can relate to or one that portrays shared interests and values. To make your clients trust you and to build your brand, tell your story. A sincere story about why you do what you do lets your clients look beyond what you’re offering and see who you are and where you’re coming from. People will love you for your approach and authenticity and want to identify with you.
Infuse personality into your brand
Personalizing your brand is a surefire way of reaching out to the humanness in your users. People rarely identify with abstract representation; thus, reaching them through this approach will have little effect. However, try putting human faces to your brand and watch the switch. The responses you will get will be warmer and more effective.
Little wonder most brands have a ‘meet the team’ section on their websites. They do this to connect with customers and prospects on a human and psychological level. When you put faces to your brand, users see themselves in you and can identify with your flaws and strengths.
Blow your horns
This tip might sound boastful, but it is not. People trust brands that have solved problems similar to theirs. What that tells them is that they’re in safe hands. When they see your results, they’re confident you can solve their problems too. So, go all the way and share those positive reviews and testimonials. Let prospects see what you’ve done and are capable of doing, and watch their trust in your brand grow.
Manage chargebacks by understanding customer behavior and building trust
Most quick fixes don’t last; that’s why a more thorough approach should be employed to handle the issue of chargebacks. The psychological angle has proven to produce better results and it is, therefore, recommended. To manage chargebacks and ensure they don’t cost you a fortune and run you out of business, you must have a good grasp of the psychology.
Understanding customer behavior and building trust with your users are two psychological approaches to chargebacks that bring long-term rewards. In this game, consistency pays. Make sure you take the right steps and keep at it; the end will justify the means.