How to tackle the problem of Subscription chargebacks

Businesses are marching toward subscription-based models and the associated risks with the model such as chargebacks and friendly fraud, are also rising frequently with a higher impact. The Saas industry faces a different challenge day by day around chargebacks because of its dependence on recurring billing cycles. Because of the daily challenges, understanding and effectively managing chargebacks is essential in maintaining a successful subscription business.

Before discussing how to tackle the problem of subscription chargebacks, let’s understand what subscription chargebacks mean.

What are Subscription Chargebacks?

A chargeback is a transaction reversal for consumer protection from fraudulent transactions or activities. In the subscription model, when a customer disputes a charge from your business, they file a chargeback through their credit card company. The whole chargeback process leads to funds being returned to the customer account, creating a loss of profit and revenue for the business. Chargebacks occur because of various reasons, such as unauthorized credit card use, dissatisfaction with a product or service or even misunderstanding about billing policies.

What is Friendly Fraud?

Friendly fraud involves customers obtaining goods or services from the merchant but then claiming issues in the payment process to keep the goods or services with them without making any payment. This is how this fraud gets its famous name of Friendly Fraud and also by retailers believing that their customers are making an honest claim. Sometimes, customers might forget about the purchase or their family members make payments without their knowledge.

Impact of Chargebacks and Friendly Fraud on Your Business

Chargebacks and friendly frauds can significantly damage your business reputation. Besides revenue loss, continuous chargebacks harm your relationship with the payment processor, leading to higher processing costs or even termination of your account. Additionally, handling chargebacks consumes precious resources and time for the organization. Whereas, friendly fraud is complex because the responsibility is on the merchant to prove that the transaction was legitimate and that the goods or services were delivered.

Tackling The Problem Of Subscription Chargebacks

Tackling subscription chargebacks is not an easy job and to combat this problem we need to make proper strategies and successfully navigate them.

Make Clear and Concise Communication

Clear and concise communication with the customers is important to reduce subscription chargebacks. You should start by giving necessary details like – what they’re subscribing to, how much it costs, and how much they’ll be charged for their subscription. To compile this you can use simple terms and conditions and confirm subscription details via email or message after sign-up.

Give an easy cancellation or unsubscribe policy

When the customer gets a complicated cancellation policy and the process of it becomes too long, the customers often take the easy route of requesting a chargeback with their bank. Help them to prevent from doing this. You can have an easy cancellation or unsubscribe policy and procedure.

If you are hesitant to give easy access to unsubscribe, consider adding an easy downgrade option based on customer feedback. The downgrade option allows customers to continue your service leading your business to capture some revenue and profit from the customers who were going to charge back first. Additionally, in the long run, having a customer-satisfied business will not only mark your business as reliable with a payment processor, but your customers can also work as great marketing partners with positive referrals.

Be clear about your free trial

Customers often forget to cancel their free trial before the billing cycle starts. They’ll then be annoyed by an unforeseen charge on their account which may lead to a chargeback from their bank. You can easily prevent this by being clear about the terms and conditions and ending the free trial. You can also send 2-3 reminders before the end of the free trial.

Prompt Customer Service

Effective and prompt customer service can help address concerns before the chargebacks. However, you have to remember that customer service means more than just answering questions, it means always being available for your customers, helping them stay updated on your service, identifying potential problems, and addressing them before they reach a breaking point.

Use Different Payment Methods

You can use an alternative payment method that is quick, easy, and innovative. They can collect subscription payments in diverse payment solutions with reliable authentication. This enables customers to easily choose between various payment options.

How to Deal with Chargebacks When They Occur

Even with all the strategies and precautions, there are chances that chargebacks still occur. When it happens, it is important to respond promptly and responsibly. Maintain a detailed record of customer interactions and transactions to help resolve the problem. In some situations, it might be more practical to provide a refund instead of fighting for the chargeback.

The Parting Note

Generally, chargebacks are considered a challenge for subscription-based model businesses, but they can easily solved with proactive management, strategies, and modern tools. With prompt customer service, clear communication, and good authentication services, you can reduce the risk of subscription chargebacks.

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