Online chargeback is a thing that business owners should be wary of when selling services or products online. Are you dealing with chargebacks? What are the reasons? How can you prevent chargebacks? This article will give answers to your questions.
What Is a Chargeback?
The groundwork for credit card chargebacks is associated with The Truth in Lending Act of 1968. However, according to the experts in the payment industry, The Fair Credit Billing Act of 1974 should be recognized as the invention of chargebacks.
What are chargebacks? These are disputed transactions in fact. Customers dispute these charges on their credit cards for different transactions. When they make a dispute, the merchant reverses the transaction and the money goes back to the customer.
Chargebacks can cause many headaches for merchants. When customers dispute a transaction for a reason, merchants go through a rather complicated process. As a result, they not only lose a sale but also end up with unnecessary fees.
E.g., if a consumer is a victim of identity theft and unauthorized transactions have been made, this consumer should contact the bank right off the bat. The cardholder will want to recoup the stolen amount. The bank can also help avoid future losses. Even if the customer is dealing with fraud (or he/she thinks it’s fraud), the consumer should communicate directly with the merchant.
Merchants need to be well aware of chargebacks and how to manage their chargeback ratio. Why? Very often, too many chargebacks result in closed accounts or make it impossible for merchants to obtain a new one.
Do you know how to calculate your chargeback ratio? All you need is to divide the number of chargebacks by its number of monthly transactions. By the way, for processors, the actual dollar amount of a chargeback is of no significance.
Need Chargeback Insurance? How to Prevent Chargebacks?
If you, as a merchant, aren’t well aware of transaction disputes and the reasons cardholders file chargebacks, you’re going to lose revenue and potentially hurt your relationship with card networks.
Do you know why payment processors want to see chargebacks below 2%? Well, your processor faces potential Visa/MasterCard fines if it allows you to continue processing and your chargeback ratio is above 2%. By the way, the mentioned fines are larger than the revenue it makes from your account.
So, if your processor sees your chargeback ratio is more than 2%, it’ll almost always terminate your account. So, you need to keep your ratio below 2%.
Merchants who want to safely and securely accept electronic payments should work only with reputable credit card processors like eMerchantBroker.com. EMB is voted the #1 high risk processor in the US and boasts an A+ rating with the BBB, as well as an A rating with Card Payment Options.
If you’re interested in chargeback insurance, turn to eMerchantBroker.com. EMB tailors payment processing solutions to meet every merchant’s needs and help them prevent chargebacks easily. How? eMerchantBroker.com offers a special chargeback prevention program or chargeback disclaimer that can help you prevent 3 out of every 12 potential chargebacks.
In partnership with Verifi and Ethoca, EMB provides merchants with an unmatched alert system to help you fight chargebacks successfully. So, you get a perfect opportunity to achieve the highest rates of chargeback resolutions in the most efficient ways.
What are the reasons for lots of chargebacks?
- Fraudulent transaction (fraud is the most common cause of chargeback)
- Failure to describe products/services appropriately
- Cardholder doesn’t recognize the transaction
- Services isn’t rendered, or merchandise isn’t received
- Credit isn’t processed
- Duplicate processing
- Human error
- Transaction amount differs from the agreed-upon amount
- Recurring transaction is canceled
- Unauthorized mail or telephone transactions
- Items aren’t shipped, or defective goods are shipped
- Invalid credit card or account number
How can you keep your chargeback ratio low?
- Stick to a DBA or “Doing Business As” name that your customers know
- Don’t fail to send confirmation and customer satisfaction emails
- Don’t forget to print your phone number on the customers’ billing statements
- Integrate customer dispute alerts
- Train customer service reps to start with a refund
- Maintain high transaction counts
- Don’t fail to verify the address, customer details, and phone number by the credit card issuing bank
- Clearly indicate one should expect when making a purchase
- Have a refund policy page on your website
- Do not accept a credit card that’s expired
When chargebacks are no more under control, expect huge losses. In addition, expect to lose your company’s good image in the eyes of credit card processors. To avoid chargeback problems and operate profitably, take the necessary steps to enjoy the lowest chargeback rate.
*Chargeback Shield is not an insurance service. EMB does not sell insurance and Chargeback Shield is not insurance, it is an alert system.