August 19, 2016
Reducing Chargebacks through Effective Billing Descriptors
By CardNotpresent.com Staff
When consumers open their credit card statement at the end of a billing month, the conscientious ones generally scan the descriptions of the charges to make sure everything they are paying for is something they truly bought. For Card Not Present merchants, the descriptor they use to identify the charge is vital because a consumer can’t always connect in his mind a product he received in the mail (from a merchant he may not remember having surfed into) with the words on the page in front of him. Often, this confusion leads to the initiation of a chargeback dispute. In most of those cases, the consumer actually did make the purchase but sincerely does not recognize the charge on the bill. The confusion is genuine and, according to Paul Larsen, a New York-based consultant specializing in advising companies collecting recurring CNP payments, completely unnecessary.
Controlling What You Can
Limiting the chargebacks within a merchant’s control can be the difference between surpassing the threshold that could trigger fines or not. It could also mean the difference between having the room to be a bit more adventurous in its marketing activities or having to leave money on the table because the retailer must turn away potential customers who present an elevated fraud risk, Larsen says. And chargebacks initiated because a consumer does not recognize the charge, he continues, are well within a merchant’s control.
“Cardinal rule number one, always make your descriptor as clear as possible so the customer understands the purchase,” Larsen explains.
He also advises merchant clients to make sure the descriptor includes its customer service number. If customers call the store before they call the bank the merchant has a chance to solve the issue before it becomes a chargeback situation.
To Roll Up or Not to Roll Up
But, aside from ensuring purchases are described on statements as clearly as possible, Larsen says there is another way for merchants to leverage the descriptor system to control their chargebacks.
Years ago Visa began measuring chargebacks at a corporate level (called the dba rollup method) in addition to the traditional individual business unit level. On a billing statement this manifests itself as a three-letter company code followed by an asterisk.
“Understanding there might be individual units within a corporation that have greater challenges with chargebacks than others—as long as real abuse isn’t at play—Visa wanted to give merchants the opportunity to get those absorbed into the corporate look,” Larsen says.
The way Visa’s chargeback monitoring program works, 100 chargebacks a month triggers the first level of response. If 1 percent of a company’s transactions result in a chargeback, a higher level of response (perhaps a fine) is triggered. Allowing a company to roll up the transactions of all its various business units for Visa measurement makes it more likely the merchant will hit the initial 100 chargebacks, but less likely, with many more total transactions, that it will reach the more serious 1 percent mark. Conversely, measuring at the business unit level might be advantageous because several divisions might be under the 100-mark, but grouped together they would trigger a review.
“Visa strongly urges their processors to make their CNP merchants use the dba rollup method,” Larsen explains. “But, at the end of the day, they don’t enforce it. So, merchants can either use it or not use it, whatever is best for them.”
Depending on its processor’s capabilities, a merchant can also use soft descriptors (also called dynamic or flexible descriptors) to describe a purchase more clearly. Larsen says while some processors may force a merchant to set up an account for each division, each with its own descriptor, the better processors enable merchants to set up divisions within a single merchant account. They also allow their clients to override the default descriptor with a soft descriptor that describes the transaction at a purchase—rather than company or division—level.
This enables retailers to subdivide into multiple departments or stores with unique descriptions and customer support lines. These can be posted on cardholders’ statements for clarification and resolution purposes.
Larsen points to a company he used to work for that sold magazines as an example of how a merchant might use soft descriptors
“We sold 1,000 different magazine titles,” he explains. “So, even though our processor would let us set up one merchant account with 1,000 divisions—each representing a magazine title and each having a descriptor—it seemed ludicrous to do that. Thankfully, the soft descriptor allowed us at the purchase level to send the title of the magazine and override the default descriptor of the company. That way the individual magazine was described on the customer’s statement.”
In the end, Larsen says, it is incumbent on Card Not Present merchants to make the descriptors that appear on consumers’ credit card statements as clear as possible. Retailers need room to maneuver, he says, which means eliminating every unnecessary chargeback.
“We advocate screening out all the chargebacks you can control thereby allowing you to absorb a few more that are a result of pure marketing practices.”