Best practices and process improvements to simplify the management of repeat and subscription customers who have initiated a chargeback.
When a customer who previously filed a chargeback attempts to return, businesses must decide whether to block, monitor, or allow them back. Chargebacks are costly, leading to lost revenue, fees, and potential penalties from payment providers. However, not all chargebacks indicate fraud; some stem from service disputes or misunderstandings.
Understanding why a chargeback occurred helps you determine how to handle returning customers. Some disputes signal high-risk behaviour, while others may be resolved through better communication or process improvements. By correctly categorising chargebacks, merchants can make informed decisions about which customers to accept and under what conditions.
Best practices and process improvements to simplify the management of repeat and subscription customers who have initiated a chargeback.
When a customer who previously filed a chargeback attempts to return, businesses must decide whether to block, monitor, or allow them back. Chargebacks are costly, leading to lost revenue, fees, and potential penalties from payment providers. However, not all chargebacks indicate fraud; some stem from service disputes or misunderstandings.
Understanding why a chargeback occurred helps you determine how to handle returning customers. Some disputes signal high-risk behaviour, while others may be resolved through better communication or process improvements. By correctly categorising chargebacks, merchants can make informed decisions about which customers to accept and under what conditions.
Classifying Chargebacks to Inform Your Response
Deciding whether to block, monitor, or allow returning chargeback customers depends on your risk tolerance and business model. With this in mind, here are 5 chargeback types to plan for:
| Type | Example | Recommended Action |
| True Fraud | A compromised card or unauthorised transaction. | Block the returning customer unless they can verify their identity. Implement sophisticated fraud prevention for added security. |
| Chargeback Fraud | The customer disputes a legitimate charge to get a refund while keeping the service. | Block these customers. Chargeback fraud is intentional abuse that harms revenue. Consider capabilities like Rapyd’s Dynamic Soft Descriptors to make sure your business’s name, as it appears on their statement, is clear and intuitive to avoid mistaken disputes. |
| Service Disputes | The customer filed a chargeback due to poor service, billing errors, or unmet expectations. | Allow the customer to return, but monitor transactions closely. Address the original service issue to prevent repeated disputes. |
| Authorisation Errors | The payment was authorised too far in advance, leading to a dispute. | Allow the customer back and track trends in pre-authorisation timing to avoid future disputes. |
| Processing Errors | Issues like double billing or a refund not being processed correctly. | Allow the customer back and improve internal processes to prevent errors. |
By implementing smart customer policies, you can block known fraudsters, flag suspicious activity, and allow honest customers to return if they resolve misunderstandings and repay disputes.
Handling Returning Chargeback Customers
Once you’ve identified the reason behind a chargeback, the next step is deciding how to handle the customer. Some approaches include:
Option 1: Block High-Risk Customers
Many businesses automatically block customers who file chargebacks, preventing them from resubscribing. This eliminates repeat fraud risks but can also mean losing potential long-term customers who filed a dispute due to a misunderstanding.
Best for: High-risk industries, businesses with high chargeback rates, and companies that prioritise fraud prevention over customer recovery.
Option 2: Flag and Monitor Returning Customers
Instead of outright blocking, some merchants flag chargeback filers for review. These customers might face stricter fraud checks or be placed on a limited-use plan before regaining full account access.
Best for: Businesses with a lower chargeback rate that want to recover genuine customers while preventing repeated abuse.
Option 3: Allow Returning Customers Under Certain Conditions
Some businesses choose to welcome back customers after chargebacks but with restrictions:
- Arrears Payment Requirement: The customer must repay the disputed amount before reactivating their subscription.
- Higher Fraud Scrutiny: Additional identity verification (e.g., two-factor authentication) is required for future transactions.
- Limited Plan Access: Customers can only use a basic plan until they demonstrate positive transaction behaviour.
Best for: Businesses looking to balance risk and revenue recovery while improving customer retention.
Stop Chargebacks Before They Start
Stopping chargebacks at their source helps you avoid managing return customers while protecting your brand trust and bottom line. Consider these strategies:
- Use Fraud Prevention Tools: Implement Address Verification (AVS) and CVV checks and use 3D Secure authentication to shift liability to the card issuer.
- Improve Customer Communication: To reduce disputes, send clear billing reminders before charging recurring payments and offer self-service cancellation options.
- Enhance Service and Billing Accuracy: Track dispute reasons, fix recurring issues (e.g., billing errors), and provide detailed transaction descriptors to reduce confusion.
- Dispute Chargebacks with Strong Evidence: Maintain records of service usage, customer communication, and refund policies. Use chargeback management solutions to challenge invalid disputes.
TACKLE CHARGEBACKS HEAD-ON
Reduce Disputes and Recover Valuable Customers.
250,000+ merchants worldwide trust Rapyd’s payment solutions to reduce chargebacks and resolve disputes quickly. Rapyd can help businesses across industries improve authorisation rates and manage chargebacks, including high-opportunity industries like online gaming, online trading, crypto and more
