Do You Have Higher Than Average Chargeback Rates?

May 04, 2020

Protect your business by keeping your chargeback rates below the maximum standard rate.

As an online business processing credit card payments, you will encounter a myriad of challenges. One of the more formidable opponents to your bottom line, without question, is chargebacks. A chargeback typically takes place when a credit or debit card issuer reverses a payment back to the merchant. This occurs when the cardholder files a dispute about the charge with the card issuer. If the card issuer determines that the card was stolen, the product not delivered, or simply not what they expected, this issuer will refund the full amount to the card holder. The merchant is then charged this same amount, with additional fees.

Having too many chargebacks can really kill your revenue stream, reduce your opportunities to accept credit card payments, and take valuable time away from building your business.

What is a high chargeback rate?

Before we dive into what is considered a high chargeback rate, it is important to emphasize the severe consequences that can take place if your chargebacks surpass the standard maximum rate allowed. If this rate is exceeded, the merchant stands to not only lose goods and pay heavy fees, but the penalties can also pile up. Ultimately, the merchant will lose the ability to accept credit cards as payment.

The chargeback ratio is calculated by taking the total number of chargebacks in a month divided by the total number of transactions that have occurred in that same month. What is considered to be the “standard chargeback threshold” is 1%. However, it is not a figure that can be applied across the board. Why? The individual card issuer decides how this chargeback rate is actually calculated and they also decide just how close a merchant can get to this maximum.

For example, if Visa and Mastercard determine that your “chargeback-to-transaction ratio” is too high, be sure that they will get directly involved. This direct involvement will come in the form of labeling you as a high risk merchant and place you in a “Chargeback Monitoring Program”. 

Solutions for getting your chargeback rates under control

To ensure that you don’t teeter close or surpass the 1% threshold, it’s important to have a prevention program in place to keep them from happening from the beginning. Here are some options:

  • Implement fraud filters – It doesn’t have to be complicated, simply add address verification systems to ensure that both the billing and shipping information are the same. A card verification value or (CVV) can also detect differences between the CVV number on the card and the one keyed in during checkout.
  • Clarify return and refund policies – Make it easy for customers to return items by providing clear and simple policies. Complicating things or being too strict will result in chargeback.
  • Be clear with product descriptions – Make sure that the product is clearly represented with photos showing different angles. Be detailed in providing as much information for the customer so they know exactly what they are buying.

Make reducing your chargeback ratio an important goal in your business.

Although chargebacks will be an inevitable thorn on the side while operating your business, it should not spell the end of your operations. By implementing the aforementioned strategies and making small changes, you can be on your way to mitigating the devastating effect that chargebacks could have on your bottom line.

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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