Chargebacks in the Gaming Industry: The Only Guide to Managing Chargebacks

Chargeback is a common sight in the gaming industry, with the 4th highest chargeback rate of 0.83%.

Gaming is an intensely stimulating product that attracts impulse purchases. These purchases are most probably headed toward chargebacks. The exclusive chargeback norms in this industry are why it is extremely important for merchants to have a management process in place. 

Reasons chargebacks happen and the steps to deal with them in the gaming industry are unlike others. There are unique reasons why chargebacks happen in gaming, so they must be dealt with a unique approach.

This space gives you all the details you need to know about the unique chargeback reasons in gaming, the best strategies to deal with them, and how to efficiently prevent them. 

What are chargebacks in the gaming industry?

Games have shifted mediums from arcades to digital interfaces. The modern-day games are realistic and come with a charge for downloads or in-game purchases like characters, outfits, or progression boosts. 

In-app purchases have changed the face of the gaming industry, and it is now worth $221.6 billion. What follows the upward trend are chargebacks.

Chargebacks in the gaming industry happen when customers disagree with a gaming-related purchase. They disagree with the charges and demand a reversal of the transaction for multiple reasons, such as incorrect billing, error, unauthorized transactions, and non-delivery, among many other reasons. 

And no, chargebacks are not similar to refunds, where gamers appeal to the merchants, and the merchants voluntarily transfer the funds to the customers. The process of chargeback starts with customers reporting a transaction to the issuing bank or payment service provider. These platforms look into the matter and reject the request or issue a reversal of the transaction. 

They notify the merchants about the transaction and offer them a chance to either accept it or fight it. Merchants must respond immediately and prepare a case with evidence to fight the request. Delay in response leads to auto-approval of the chargeback.

What’s the biggest chargeback challenge facing gaming?

Children making gaming purchases from an adult’s card they are unaware of is the biggest challenge you can possibly face. A huge chunk of the chargeback requests in the gaming industry are from parents reporting unauthorized tractions, which in reality were done by their children.

When parents make an initial purchase for a child, the card data is stored in the application, just like any other payment interface. This gives children access to the card and its usage. They may make purchases they are or aren’t aware of without their parent’s knowledge.

The reason why it is a challenge is, that some credit card issuers recognize this reason as a valid reason for chargeback while some do not. Merchants have to contemplate if they should or shouldn’t fight a chargeback. They need a lot of intel to make the final call. 

Besides, there are a bunch of situations exclusive to this industry. They are:

• Friendly fraud - gamers who chargeback a valid transaction, either unaware of its true nature or with malicious intent commit friendly fraud. It could be when gamers make impulse purchases in the heat of a winning or losing moment. It could also be a strategy to make purchases without paying for it. 
• Card fraud - scammers test stolen cards by making gaming purchases. A stolen card that is reported, maxed out, or blocked would be declined while making big purchases. Such declines led to security check troubles, which scammers want to avoid. So they test such cards on tiny, negligible gaming purchases before using them elsewhere.
• Account takeovers - Gaming accounts with easy-to-crack codes are common. And video games are designed in a way that makes it easy for players to make a purchase in between games instantly. Players can make a quick purchase using saved data and get back to the game just like that. This ease of access makes the accounts prone to takeovers easily. The card information in the account can then be used for fraudulent activities. 

You need a chargeback management solution like ChargePay that is aware of the right approach to dealing with such reasons. We know the individual policies of card issuers and, ultimately, the best possible course of action. 

How can you address chargebacks?

As a merchant, you can either accept the chargeback, which leads to transaction reversal with an additional fee, or you can fight the chargeback. If you choose to fight it, you just have one shot at the case. So you need to gather evidence that can prove the legitimacy of the payment to win it.

Fighting chargebacks isn’t always the best thing for you. You need to determine if the transaction was indeed fraudulent and, secondly, if the returns from the fight succeed, what’s at stake. When you choose to fight, here’s how you can handle chargebacks:

1. Gathering evidence

When you are challenging a chargeback request and need to gather evidence, you must collate documentation, such as transaction records, customer communication, and usage logs. These documents can prove the transactions were valid, and you will not lose your business revenue.

2. Chargeback response

While drafting the response to chargebacks, you need to add the evidence and a compelling rebuttal letter. How well you draft your case determines your winning possibility, so make it count. Send out your response on time, keep it short and to the point, and adhere to the issuing bank’s guidelines. 

3. Tie-ups with payment processors

The gaming industry is unlike others. Each issuing bank and payment service provider has their own set of rules and regulations for different chargeback reasons. So, you must build a strong relationship with them to know their rules and regulations. You need to chart the best course of action for the chargebacks.

What are the best practices to prevent chargebacks?

Firstly, the process of handling a chargeback request is complex. Secondly, the gaming industry is made up of micro-transactions which, when translated into revenue loss, is huge on the overall front. The best strategy for handling chargebacks is to prevent them from happening in the first place. 

1. Great customer service

You need a response and easy-to-access customer service available on multiple channels. Encourage your gamer customers to reach out to you with their queries and avail of a refund rather than choosing to chargeback transactions which come with additional fees from issuing banks and payment providers.

You can have a policy in place for cases such as transactions made by children and offer them a refund. Having a customer service team people can reach out to is one effective way of avoiding chargebacks.

2. Over-communicate

Over-communicate the consequences of each purchase every time a transaction is made. Clear out the expectations and outcomes of a purchase and make the information easy to digest. Reading through the consequences of each purchase before making the payment helps prevent impulse purchases made in the heat of the moment.

To be extra careful, ask for user consent on the return policy before purchase. This does not only stop a future possible chargeback but also gives you a piece of valid evidence to fight the chargeback if it is raised. 

3. Fraud prevention

You need rigorous validation and a fraud prevention process in place to avoid card & identity-related thefts. Increase your site's security by deploying safety measures like complex passwords, two-factor authentication, and more. It is very difficult to identify genuine customers from fraudsters, so find the security measures that can differentiate and take the right action at the right time.

4. User identity

If you want to stop cases such as family fraud, you must deploy a user identification process. Technology such as one-time passwords (OTP), PINs, and biometric information to identify each user. With such a stringent process in place, children will not be able to make purchases without an adult’s supervision. This is one effective way to prevent family fraud. 

You can also trigger payment confirmations and notifications for emails and phone numbers that adults have access to. Any activity will notify the adult, thereby creating a possibility for an instant refund, which does not affect either of the parties. 

How can you use ChargePay as a shield from chargebacks?

Understanding the norms of devising a great chargeback handling and prevention strategy is one thing, but efficiently executing it requires a different level of effort. Also, there’s no guarantee it would work.

What will surely work is having a chargeback management tool like ChargePay in place. Our software is built to handle chargeback requests exclusive to the gaming industry. We are the experts in addressing chargebacks linked to virtual items, in-game currency, and subscription services. Be it the chargeback complexities because of evolving game content and purchases, disputes from account compromises and fraudulent transactions, or multiplayer disputes and dissatisfaction, we got it all. 

This unique approach to handling chargebacks helps us reduce gaming revenue by up to 80%. Our relationship with payment providers and issuers increases your credibility too. Ultimately, you can have all the time to better your gaming solutions and improve your games, while we handle the chargebacks for you. 

If it sounds like a deal, book a demo with us today!