Protect Your Business From The Uncertainties Of Disputes

Apr 25, 2022

If the devastating effects of the COVID-19 pandemic were not enough, businesses must also contend with the steady rise of “friendly fraud”. This is when a customer makes a purchase, receives the product, then requests a refund from their credit issuer. This refund is also known as a chargeback. Chargebacks can be deadly for the business bottom line, and eventually for the business itself. 

Chargebacks And Their Financial Toll On Businesses

According to Mastercard, the volume for global chargeback approached $615 million in 2021. The expected average chargeback cost for 2023 will amount to $117.46 billion. Merchants stand to lose $79 billion in losses. 

At a more granular level, each chargeback costs between $20 and $100. This, of course, depends on the agreed-upon contract with the merchant’s acquirer. When all other additional and hidden costs are added, businesses end up losing more than double the transaction amount for every chargeback. 

Why Are Businesses Left Holding The Bag?

So why do we even have chargeback fees in the first place? Simply put, the chargeback process can be costly in terms of time and money. It is also a good way to encourage merchants to go above and beyond their current processes to assist customers with the issues that resulted in the chargeback.

Plus, when a chargeback occurs, the issuing bank has to refund the customer out of their own money. This is the reason that money is taken from the acquiring bank, to reimburse the issuing bank. 

The chargeback process is never handled by one person. Instead, the card network, the employees at the financial institution, and other parties need to be involved in managing the process. All the manpower involved will need to be compensated, and this requires money. Having to deal with customers and any possible security concerns, the bank extends a portion of these costs to the merchant. 

Fees are also a great motivator to discourage chargebacks and to instead offer refunds. 

There are a few more expenses that are associated with chargebacks that few merchants are even aware of. Here they are:

  • Operating costs: Let’s face it, there are costs in just about every aspect of your business. When you process an order, you pick the item, pack it, then ship it. You also have to stay on top of your inventory. 

Then there are all the logistics involved, plus transportation, all to ensure that your product gets to your end-customer on time and safely. All of these processes can eat up to 20% of your bottom line. You lose precious revenue with every chargeback. 

  • Transaction fees: The payment processor gets a portion for every payment processed for a merchant. If the transaction turns into a chargeback, then the fee is wasted. 
  • Marketing and acquisition costs: Sales are not automatic and they certainly don’t come easily. In fact, most businesses are known to spend between 30% to 40% of their revenue to fuel their marketing efforts. When every one of these conversions and sales turns into a chargeback, those hard-earned funds used to create that customer are obliterated. 

How Can You Protect Your Business From Chargebacks?

It seems to be a common mentality among merchants that chargebacks are just another reality of doing business. However, this type of mentality should never be one of acceptance. These chargebacks seriously threaten a merchant’s profit margin and can put the life of the business in jeopardy. 

A better approach would be to look into implementing some strategic solutions to prevent chargebacks from happening in the first place. Let’s look at a few:

  • Clearly spelled-out policies: There is nothing more frustrating than for customers to discover that you don’t accept returns, or if you do, only within 30 days, etc. When it comes to your return policies, taxes, and shipping, have these policies prominently displayed on your website so there are no unexpected surprises. If customers need to get a hold of you, provide contact information for the ways they can get in touch (e-mail, chat, phone).
  • Combat friendly fraud: When it comes to chargebacks, friendly fraud will be one of your most prominent nemesis. Be very observant of “chargeback reason codes”, ensure records are thoroughly kept, and address fake chargeback claims as quickly as possible. All of this will equip you if and when you must go through the “representment process.”
  • Get help: Sometimes, chargebacks can be coming in faster than you can deal with them. This is where you should be concerned about your chargeback ratio surpassing your provider’s agreed-upon limit. By exceeding this ratio, you run the risk of having your merchant account completely shut down. To avoid this, seek the help and expertise from chargeback management companies to bail you out.

If you have a high-risk merchant account, your provider should have chargeback protection tools that can be implemented as well. 

  • Clear billing descriptors: When customers look at their bank statements, they are likely to pursue a chargeback if they are not clear or unable to identify certain charges. Any transaction that they are unfamiliar with might be seen as fraudulent. Therefore, ensure that all identifiable information is clearly seen on the customers’ bank statements.

Keep Chargebacks At Bay

Chargebacks and friendly fraud stem from a fundamental and foundational problem…customer dissatisfaction. Ensure that all of your products online have top-quality pictures, with clear and detailed descriptions. 

Simplify your online shopping cart, checkout, and the delivery process, as well provide a proper receipt, detailing what the customer was charged for. 

If you are an online merchant, providing secure technology for contactless payments is essential. Be vigilant for any signs of fraud and protect yourself before chargebacks make their way into your bottom line.  For this growing problem, prevention is everything. 

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.