Whether you’re a seasoned merchant or a new business adding credit cards to your online, in-person, or mobile payment options, “chargeback” is a word you don’t want to hear. They often appear without warning and create havoc in their wake when you’re not looking. So, what are chargebacks, and how can they affect your business? In short, a chargeback is when a credit card holder who purchased a product from your business disputes the charge.
Why would they do this? Two main reasons:
1. They believe they were charged the wrong amount, received the incorrect item, or perhaps the item they ordered from your website never arrived (possibly through no fault of your own).
2. The customer suspects fraudulent activity with their credit card — an unauthorized user made a purchase without their consent.
In the first case, you should at least have had some warning, or an attempt to correct the problem through your company’s outstanding customer service practices. However, sometimes the customer skips the step of letting you know there’s a problem and goes straight to initiating the chargeback instead.
In the second case when fraudulent activity is involved, you never see it coming. A criminal steals your customer’s identity or credit card information and uses it to purchase a product from your business. You never know it’s fraudulent activity until your merchant account alerts you…in the form of a chargeback.
It gets worse.
On top of real fraudulent activity, you also run the risk of incurring “friendly fraud” chargebacks. (It’s an oxymoron, we know! Which makes it even harder to digest.) This type of fraud is when someone poses as an actual customer, using a legitimate credit card, but claims they never received their order — when they actually did. When these “friendly” criminals get away with receiving credit for a chargeback once, 50% of them attempt it again within 90 days! Unfortunately, this type of chargeback activity is on the rise, going up 20% over the last couple of years, and it will hurt your business if you’re not prepared. As online commerce continues to increase (96% of Americans shopped online in 2017), so do all types of not-so-friendly fraud attempts.
Chargebacks come with fees and more fees. Chargebacks can hurt your business beyond the reversal of the original charge, which, by the way, the customer can legally dispute for up to two years after making the purchase. Beyond returning original funds to the customer, their bank also slaps on chargeback fees up to $100, depending on the terms of your own merchant account.
When the customer initiates a charge dispute, it’s up to you, the merchant, to prove its legitimacy, or you refund the money plus the fees.
If this happens too many times, merchant accounts start to view your business as risky, and they can increase their commissions. Beyond that, they can withhold your funds for up to three months to cover the fraud and all its fees, if they decide to label your account as “high risk.”
We realize none of this sounds good, but don’t be discouraged. There are steps you can take to reduce your vulnerability to fraudulent chargebacks, and things you can do to protect your business and prevent fraud from happening in the first place.
Your best defense against chargebacks is education and prevention. Especially as a new business, learning about the terms of your merchant accounts is a good idea. What kinds of fees do they charge you each month? What makes them consider you a high-risk account?
The more you know, the more you can prepare and hopefully prevent additional chargebacks and excessive fees. One way to do this is to improve the security of your accounts and make sure your credit card processing system is PCI compliant. Make sure all the latest policies are in place so your merchant accounts are as secure as possible for online, in-person, and mobile purchases.
Does your business have a chargeback dispute resolution process in place? Another way to be prepared to deal with the inconvenience and financial stress of chargebacks is to have a dispute resolution process in place before they occur. In addition to running a successful business, do you have time to effectively and expertly dispute fraudulent chargebacks and suspicious activity on each of your accounts?
If the answer is no, you may be sacrificing revenue and hidden fees that ultimately have a negative impact on your bottom line. When you don’t have time to manage chargebacks on your own or the thought of carefully combing through the details of PCI compliance regulations seems overwhelming, partnering with the financial experts at Merchant Broker is an ideal solution.
My Merchant Broker is an asset to your business and your bottom line. We are chargeback and PCI compliance specialists. When you choose to partner with us, we begin by conducting a comprehensive account analysis with each of your merchants. We identify any areas of concern and advise you on how to improve security with your cardholder networks.
On our watch, we make it our business to help you protect sensitive data, minimize chargebacks, and avoid fines. If you do receive any chargebacks while you’re partnering with us after we’ve optimized your security, we’ll negotiate on your behalf to increase your bottom line. Merchant Broker will be your strongest defense against frauds, refunds, revenue loss from unnecessary chargebacks and processing fees.
Learn more about how Merchant Broker can help your business; get in touch with us today.