Navigating EdTech Chargebacks: A Complete Guide for Educational Technology Providers

El-Mehdi
,
CEO of ChargePay
|
June 5, 2024
|
11
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The training and education industry experiences the highest chargeback rate of 1.02%. This is the very reason why EdTech providers must strategize chargebacks as a priority.

Per the statistic, this industry records more than 1 chargeback for every 100 sales. Which is higher than the acceptable rate of 0.65%. High chargeback rates not only have negative implications on business but also lead to penalties from credit card networks.

But all of it can be avoided if you build your billing process in line with chargeback prevention. And, this guide has all the information you need to do it. Check out the nature of chargebacks in the education and training industry and learn how to handle them. 

What are EdTech chargebacks?

Chargebacks in EdTech happen when a customer or user disagrees with the costs of the education material for many reasons. The customer disputes the charge, claiming a chargeback with the merchant or the issuing bank. The concerned party launches a thorough investigation into the dispute and resolves it. 

As the merchant and the primary point of contact for the chargeback, you need an effective chargeback management process. How proactively you prevent and deal with its resolution will have a direct impact on your company’s bottom line. Because they end up as financial losses, operational disruptions, and damage to customer relationships. 

The very nature of the EdTech industry is the reason for the high chargeback rate. The products and services in question are digital educational content, online courses, software licenses, or subscription services. 

There’s a high possibility of a mismatch in the level of user expectation vs actual outcome of educational materials. 

Other factors include content complexity, long-term value, quality assurance, engagement, and more. The purchase intent does not always match as easily as an eCommerce product. 

Why do EdTech chargebacks happen?

To build a process for handling chargebacks, you need to be aware of the reasons they happen. Though unique cases do happen, most of the chargebacks are common and can be automated. Here are some of the common reasons:

Unauthorized transactions

Transactions initiated without the consent of the user fall under this category. These are transactions that happen with stolen credit or debit cards and compromised account information. The user claims to not have purchased the service/product and demands a chargeback.

Quality issues

When the user is not satisfied with the quality of the educational material. This can be either because the content of the educational material is not at par, isn’t engaging, is not well structured, or is too complicated to understand.

Technical errors

These are system and technical glitches such as payment processing errors, billing discrepancies, or system failures. Such glitches lead to wrong billing and charges, and users are forced to claim chargebacks. These issues can be from your end as a merchant or the issuing bank’s end. Your employees should be aware of how to escalate such errors to the issuing bank when necessary. 

Billing disagreement

Billing is often subscription-based in the EdTech industry. This gives rise to issues such as automatic renewal, cancellation, and other disagreements. Any price that does not align with users or troubles with cancellation are disputed.

Customer service issues

When users face issues with customer service they tend to request a chargeback. Oftentimes when they cannot reach out to customer service or have an unattended query, they default to cancellation and chargeback.

Cancellation issues

Subscription-based services or products experience high chargebacks with regard to cancellation issues. Users may either be unaware of the process to cancel a subscription or the charges attached to cancellation and the refund policy. 

Service deception

Educational materials do not have a set of features like a regular product does. Users may perceive the content of the materials in a different way and be unsatisfied with the purchase. They blame the false portrayal of the product and misleading marketing. Also, the outcome expectation is often misaligned. 

Fraudulent activities

Like any other product or service, the EdTech industry may fall prey to fraudulent activities. Your company can face identity theft, account takeover, and other types of fraud activities. You need a system to fight it and deal with it when faced with it.

What is the impact of chargebacks on EdTech companies?

Edtech Structure

Chargebacks are unpleasant and have multiple negative implications. Not just financial, but they come with operational and customer-related challenges. 

Financial constraints

This is the biggest impact chargebacks will have on your company. Chargebacks are equivalent to a loss of business plus, also have fees attached to them. When not dealt with immediately, they lead to huge financial losses for companies. 

Operational inefficiencies

Cash flow comes to a halt with chargeback requests, and companies face cash flow disruption. Besides, the process of chargeback resolution is in itself time-consuming and resource-intensive. They hold a major section of your manpower into petty activities of research and analysis, which can otherwise be invested in revenue generation efforts. 

Customer trust 

Being wrongly charged never sits right with a customer, and you will lose them for good. If you are unable to resolve their issues or face a high chargeback rate, customers will lose trust and confidence in your services.

Legal issues

Not having a chargeback resolution in place or not being able to efficiently handle a chargeback can lead to compliance complications. Compliance risks, including violations of regulatory requirements, payment card network rules, and data security standards, are some of the compliance issues your company can experience. 

Penalties from stakeholders

A high level of chargebacks or inefficient management strains relationships with payment processors, banks, and other financial institutions. They can even penalize merchants and revoke their payment processing privileges. Companies may not be able to receive payments, disrupting their business.

Loss of reputation

A high chargeback rate is negative publicity. Companies facing this have a hard time gaining customers' and other stakeholders’ confidence. All such instances can lead to a loss of reputation and business opportunities, and it is very difficult to bounce back.

How to best manage a chargebacks in EdTech 

Preventing a chargeback should always be a priority for you. But when faced with it, you should promptly deal with it to keep customer trust and your business operations up and running. Hire an analyst and adopt the following steps to efficiently handle a chargeback. 

Chargeback request

When a user disputes a transaction, the merchant receives a chargeback request. The reasons to raise a chargeback request are fraudulent activities, billing errors, dissatisfaction, technical issues, and more. The analyst must record the same and prioritize it based on the level of urgency.

Investigation

Now comes the investigation phase, where the request must be thoroughly examined. The analyst must collect all the documents, such as transaction records, user account information, and communication logs. If necessary, documents that support the chargeback request must be requested. All the documents should be thoroughly studied to find the right solution. 

Resolution 

The analyst must now draft the next steps based on the solution. If required, have a layer of quality assurance checks done by supervisors. If found correct, the chargeback request must be processed. If not, the reasoning should be drafted along with documents supporting the rejection and some room for users to counter this reasoning.

Customer communication

Have your analyst communicate the solution to the customer now. The customer must always be aware of their chargeback request’s status. The customer may accept the solution or counter it if unsatisfied. Your analyst must answer all the concerns and address them.

Follow-up

It's time to bring in all the other concerned departments now. If a chargeback is to be processed, the finance team should be informed so they can process the amount and close the ticket. Likewise, sync with other departments required to close the request. 

Documentation

Keep a record of all the chargebacks to find recurring patterns that must be addressed immediately. Always monitor all the documents to catch any emerging trends and come up with solutions to improve them. Your efforts to improve the process of chargeback management should always be on. 

But this process has some shortcomings too. A lot of manual tasks are part of this process, which can be automated. ChargePay is the AI automated chargeback management solution you need. Get your chargeback management, win rate, and revenue up and running. 

Protect your business from the negative impact of chargebacks with ChargePay today. 

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El-Mehdi
CEO of ChargePay
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