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Doug Nebeker ("Doug")
I was just reviewing FastSpring terms preparing to sign up with them and I see they charge 3.5% for refunds and chargebacks.
I have seen people on here talk about what chargeback rate to expect. I got the impression the chargebacks were charges people made that somehow didn't go through - as in the credit card company didn't send the money.
Is that correct?
Why would this happen?
I'm planning a trial period for the software so hopefully there won't be many situations where a refund is warranted, but some people do pay right away and then change their mind during the trial period.
My software is a few hundred dollars, so to have to give up 3.5% if I want to refund someone their money concerns me.
Same with this whole "charge back" notion. Hopefully because it's a more expensive product I'll mostly attract serious people, but I'm wondering what's normal here.
Is 3.5% really warranted? (I guess if a credit card transaction is 3% it makes sense?) Do chargebacks happen often?
>> "I got the impression the chargebacks were charges people made that somehow didn't go through - as in the credit card company didn't send the money. "
No, chargebacks are when someone buys your software with a credit card, and then later that person (or the real cardholder) calls the bank and says they didn't make the charge. The real customer gets the money back, and your payment provider (in this case FastSpring) takes the money from your account plus the fees (3.5% for FastSpring, and round about there for other CC processors).
So how does a chargeback happen? Well, for B2B software, it's almost always a case where an asshole uses a stolen credit card number to purchase your software. Then, a month or 2 later, the actual cardholder sees this unknown charge on their bank statement, they call the bank and tell them to reverse the charge.
>> "I'm planning a trial period for the software so hopefully there won't be many situations where a refund is warranted, but some people do pay right away and then change their mind during the trial period."
If you offer a refund of some period (30 or 60 days), then you won't get chargebacks from legitimate users. You might get the occasional refund requests, but better to give a refund then to incur a chargeback. You can read more about it here: http://merchantwarehouse.com/how-do-chargebacks-affect-my-merchant-account
This quote in particular: "It is also important to note that MasterCard and Visa fine merchants and their merchant account providers that have too many chargebacks. Once a business experiences more then one percent of their sales as chargebacks, it is subject to fines up to $100,000 per month or more."
>> "Is 3.5% really warranted?"
For chargebacks? I know we pay somewhere around there (I think it's a bit lower, but I'd have to take a look). For refunds, that number is a bit high.
>> "Do chargebacks happen often?"
Not for B2B software with a well-known refund policy. Place your refund policy where the customer can see it and will actually read it. Even then you'll get the occasional fraudulent transaction from a stolen credit card (which will cause a chargeback once the real credit card holder notices). But it looks like FastSpring offers some fraud protection.
Saturday, December 28, 2013
Your posts are always so knowledgeable and helpful.
I feel a little better in that my clients are professionals like lawyers and doctors so while this could happen there probably aren't too many credit card thieves out there who would want this type of software.
Though there are some rash individuals who might change their mind and do a chargeback before asking for a refund. So I can see the benefit of a well posted refund policy. (I just started a different thread on refunds vs. trial period.)
I think I posted this story before but I did have a customer once buy my software and try calling me for support. I was literally at the hospital with someone and didn't get back to him for 2 or 3 hours.
As I was helping him he made the comment that he would retract his complaint about me. I thought he was joking but no, he had actually filed a complaint with PayPal. I think when he didn't get an immediate response he panicked and thought it was a scam.
Still, a little over-reactive if you ask me.
Pretty much agree with everything Wyatt says. One exception:
"If you offer a refund of some period (30 or 60 days), then you won't get chargebacks from legitimate users."
I've had this happen more than once. For example:
- The customer doesn't recognise the name of the charge on their card although they bought and still want the software. I think Fastspring used to just use their name for the charge, but now also add the software name so hopefully that's reduced the chance of that happening.
- The customer isn't happy with the software and doesn't bother to find out if there's a refund process and just defaults to a chargeback. I've had this happen to. It's annoying as hell.
Sunday, December 29, 2013
Chargeback reasons can vary. Often it is cause by fraud and unauthorized charges. A cybercriminal uses a stolen credit card and then the true card owner reverses the charge. It is vital for you to choose an e-commerce provider who collaborates with your closely and analyses your customer behavioural patters to establish a tailored set of rules to efficiently screen fraud, but also maximize revenue.
A large number of chargebacks can be initiated by genuine customers. Most common reasons are:
- Product not as described: To prevent it it is important to have very accurate descriptions and images of your product. It is also important to keep an eye on your affiliate, they often have outdated information. In this case the customer can request a chargeback
- Product not delivered - A very common cause in software e-commerce. Very often the delivery e-mail gets into the Spam folder. Your e-commerce provider's reaction speed is important here. You can safeguard yourself by having a delivery notification and license activation tools in place
- Unrecognized subscription - often customers just forget they signed-up. It is important to send out reminders before each charge and have an easy-to-use opt out mechanism in place
- Friendly fraud - dishonest customers. Sometimes they just look for free stuff, buy it and then claim they didn't do it. Again, your e-commerce provider can help you prevent it, store as much data as you can, collaborate with your e-commerce provider.
- No refund policy -
Please let me know if I can help you with more information regarding chargeback prevention and mitigation. Although they cannot be avoided entirely, they can still be reduced. Prevention relies on a multitude of factors closely tied with product specifics.
Sunday, December 29, 2013
3.5% is extremely low, it costs me a hell of a lot more than that when we have to do a refund or chargeback.
Yeah, chargeback is what customers do when your product is shit (in their minds) or never arrived or worked and you refuse to give a refund. It's a bad thing because if you have too many of them, the credit card companies consider you disreputable and revise your terms and fees to reflect that.
"fines up to $100,000 per month or more."
Holy shit! That's considerably worse than I thought.
Chargebacks are bad. Avoid them at all costs. Credit card companies favor THEIR customers in disputes, not merchants. This is why it's a huge advantage to use credit cards, which are basically a 2% tax on all commerce. Smart deal for banks.
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