“Chargeback” isn’t always a dirty word, especially when you’re equipped to defend your business.
First things first. What exactly is a chargeback, anyway?
In the simplest terms, a chargeback is a return of funds. And before you say, “Isn’t that just a refund?” Stop there. The key differences between a chargeback and a refund boil down to two things: who the customer actually contacts to get their money back and how long the process takes.
While a merchant can set its own return policy and control how it responds to refund requests, it doesn’t have much control over chargebacks. Neither one is ideal for event producers.
So, how does a chargeback work?
The whole process starts when a customer files a formal dispute with their card issuer, a credit card company or bank, to initiate a transaction reversal. The card issuer then notifies the merchant and automatically refunds the transaction — meaning money gets pulled directly out of the merchant’s account. To add insult to injury, the merchant also has to pay a chargeback fee, and those fees aren’t cheap. We’re talking $15 to $50 a pop.
Where a refund can be over and done within a few days, a chargeback might not resolve for weeks, if not months, if the merchant contests. Even if the merchant has supporting documentation to refute the claim, winning isn’t always a sure thing — especially when it comes to live events. That’s because events aren’t physical things you can ship or consume. They have to be experienced, virtually or in the flesh.
What are some reasons someone might file a chargeback in the first place?
Chargebacks generally fall into one of three categories: legitimate disputes, criminal fraud, and friendly fraud.
- A legitimate dispute generally means the merchant made some type of mistake. Maybe the purchaser got overcharged or the product or service was not as-described or never received. Contacting the merchant directly could resolve a legitimate dispute much more quickly, but in the event the merchant doesn’t respond or want to cooperate, a chargeback gives the purchaser some recourse against the merchant.
- Criminal fraud involves an illegal or unauthorized transaction, such as using a stolen credit card number to buy something or identity theft. It’s the reason chargebacks exist in the first place so the consumer has protection against true fraud. The good news is, criminal fraud isn’t all that widespread. It only accounts for only 5-10% of chargebacks.
- Friendly fraud, the most common type of chargeback, occurs when someone flags a legitimate charge on their statement for fraud. While some ticket purchasers deliberately cyber-shoplift, it’s called “friendly fraud” or because most disputes stem from unrecognized merchants or absentmindedness. In other words, the purchaser likely doesn’t realize they authorized the charge or simply forgot they bought something.
How does “friendly fraud” show up in ticketing?
Unfortunately, friendly fraud happens all the time with events, and it’s almost impossible to detect. Why? Because it stems from a legitimate transaction.
Imagine these scenarios:
- A couple shares a debit card, and one of them buys a high-priced festival ticket on Tixr. Their partner sees the charge, doesn’t recognize the merchant, and jumps to the conclusion that someone got a hold of their card number. Legitimate charge, poor communication.
- A fan buys a non-refundable ticket, gets food poisoning day-of-show, then files a chargeback claiming they never authorized the purchase to force a refund. Legitimate charge, selfish action.
- A scalper purchases a group of tickets, sells them at a markup, then disputes the transaction. Legitimate charge, shady business.
In every one of these scenarios, the customer’s the one at fault — whether they realize it or not.
What are we doing (and what can you do) to help win disputes?
Every business knows chargebacks come with various direct and indirect costs no one enjoys dealing with, from absorbing dispute fees and opportunity costs to spending time on manual reviews and dispute resolution. Think of each type of chargeback as a unique opponent that requires a bespoke strategy to beat.
- Providing great customer service is your best bet to get in front of legitimate disputes. Triple-check your event build for pricing inaccuracies, make sure your event policies are crystal clear, and consider activating Fan Transfers to move tickets between accounts safely and easily without your involvement. The ball’s in your court here!
- It’s our job to do everything in our power to detect true criminal fraud and prevent it from happening in the first place. When we say we’ve hired data science experts in event ticketing fraud prevention, we’re not kidding. We’ve even brought in folks who’ve published academic papers on the subject! Predictive data algorithms built by our data science team, paired with Stripe’s industry-leading Radar risk detection and scoring tools, pack a powerful one-two punch to prevent chargeback fraud. And if a customer does initiate a dispute, we’ll help you fight it. To date, we win 80-100% more often than when merchants challenge disputes themselves.
- When it comes to friendly fraud, it’s the hardest to spot and the most challenging to beat. Why? It stems from real customers who made legitimate transactions. Friendly fraud is a problem that isn’t going away anytime soon, so we think it deserves its own blog post.
Stay tuned for Part 2 of our series on chargebacks with useful strategies for fighting friendly fraud.