Developing brand trust and reputation is more difficult for online retailers than for brick and mortar stores.

Mom and pop shops are able to develop relationships with their customers over time, gaining snippets of information about their lives through short ‘over the counter’ engagements, and earn loyalty through consistent quality service. But these relationships simply don’t translate into the digital world.

In the digital marketplace, consumers are quick to change retailers in search of a better deal, and nearly 90% of consumers now rely on online reviews to gage the trustworthiness and reliability of a business. As a result, online retailers strive to keep their customers sweet with competitive prices and top range customer service. But how far should retailers go to maintain a good relationship with clients?

Since the responsibility for refunding credit card chargebacks shifted to retailers in October 2015, cases of ‘friendly fraud’, when customers order goods, falsely claim they never got them, and ask their credit card issuer for a chargeback, are on the rise but despite this many retailers are reluctant to challenge illegitimate chargebacks in fear of disgruntling clients.

So when should retailers contest chargebacks? And does it put brand reputation at risk?

Consumers are increasingly cautious nowadays, and expect transparency from online retailers to build brand trust. Online reviews play a big part in developing consumer trust in the digital age, and as a result, many retailers are hesitant to challenge chargebacks from customers in fear of receiving poor reviews, which could tarnish their brand reputation.

However, while there is the chance that a customer could take to the web to air their dirty washing, a recent study by Shopify found that 75 percent of reviews posted on review websites are positive. There is no proven data that shows chargeback challenges impact brand reputation or growth in a company.

Generally, a client will request a chargeback for four reasons. 1) They genuinely believe they have been a victim of online fraud. 2) They don’t recognize the transaction on their credit card statement, or didn’t make the purchase themselves. 3) They are unhappy with a product or service 4) They are maliciously trying to get money back for something they have bought or used.

When a client demands a chargeback for legitimate reasons, in cases of fraud, or simply because they are unhappy with the service or product provided, there is no motive for the retailer to challenge the chargeback. In which case, with their money returned, there should be no reason for a customer to leave a negative review. The worst case scenario would be that they take their service elsewhere.

In cases where the customer is at fault, or is simply trying to cheat the system, it is unlikely that the customer will leave a negative review even if their chargeback is declined after an appeal by the merchant. Those who attempt credit card fraud and get caught out are unlikely to want to publicize this on the internet for all to see.

Online retailers should embrace transparency and include client reviews and rating systems on their site, and actively encourage customers to leave reviews. If you are providing the best service possible, the positive reviews should outshine the few bad experiences overall.

As outlined above, there is no reason that fighting chargebacks should affect a brand's reputation online, assuming they play fair and only contest chargebacks which they view as being illegitimate.

We recommend that retailers accept the chargebacks which were triggered due to a merchant’s negligence or if the merchant has not fulfilled their obligation, or in any cases where evidence suggests that credit card fraud has taken place.

However in the case where compelling evidence suggests the fault is on the side of the consumer, such as cases of ‘friendly fraud’ or ‘family fraud’ - when a consumer denies making a payment when in fact their card was used by a family member - the retailer is well within their rights to contest the chargeback. In cases of family fraud, merchants should provide proof of the person who placed an order and their relationship with the cardholder, if this information can be found in the public sphere online.

In the case of friendly fraud the merchant should challenge if they have the following compelling evidence: Invoice copy, transaction receipt, AVS/CVV match, delivery confirmation (tangible products), proof of product usage (digital goods), IP Address (matching location of billing address).

Merchants should fight chargebacks only when in possession of supporting documents to prove that they as a merchant have met the terms and conditions of the product or service opted by the customer.

While mistakes and oversights do occur, in the majority of ‘friendly fraud’ cases, retailers are challenging claims by people who are actively trying to defraud their businesses. Rather than worrying about damaging their relationships with these customers, merchants should actively try to cut all ties with the customer as soon as a fraud activity is discovered.

According to recent studies, once a customer has filed a chargeback, they are nine times more likely to do so again if it is approved. To combat this, retailers should create databases known as ‘blacklists’ which can be used to flag users who have claimed a suspicious chargeback despite having been sent a product or used a service. Retailers should flag blacklisted user’s name, phone, IP address and card on file to prevent future orders from them or from their family members.

If merchants want to stay on the safe side and avoid any malicious ‘pay back’ negative reviews on their site, they could simply make comments and reviews only available to registered users, and then block the offender’s account.

While offering the highest level of customer service is extremely important in the world of e-commerce, merchants should always stand their ground and fight their battles when evidence suggests they are being defrauded intentionally. There is no evidence to suggest this will affect their brand reputation. If the best service is offered, the volume of positive reviews should be enough to keep new and existing clients coming back for more.

Srii Srinivasan

Srii Srinivasan

Srii Srinivasan is CEO of Chargeback Gurus.