Chargeback Protection Program

What are Chargebacks?

Chargebacks, also known as reversals, are disputed transactions by consumers. Created as a form of consumer protection, chargebacks gives consumers a peace of mind from unauthorized or fraudulent transactions. When a complaint is made, the bank refunds the original amount to the consumer. Unless the merchant can prove that the transaction is legitimate, the merchant lose not only products or services that have already been sold, as well as payment and fees incurred for processing the transaction, but also money from chargeback penalties.

What causes Chargebacks?
What can I do to protect against it?

Most causes of chargebacks can be categorized into three types: merchant error, criminal fraud and friendly fraud.

Merchant Error

This can be caused from errors in merchant account set-up, confusing terms and conditions, transactions, and/or order processing.

  • Hidden or Non-existent Terms and Conditions
    • Before the client purchases your product or service, include an accurate description, along with  terms and conditions. Also include clear instructions on how use and warning labels whether on your website, packaging or on the product itself — or all three
    • Chargebacks more Convenient than Complicated Return Policies
      Implement easy return and/or refund policies. Difficult or complicated procedures deter clients from following them and encourages them to seek a much simpler approach, such as a chargeback. Refunds are always less expensive to a merchant than if a customer wins a chargeback.
    • Unique Business Models / Unclear Disclosures
      Develop best business practices by not making unreasonable claims about a product or service. A clear, concise and visible “terms and conditions” section will let your customers know what they are agreeing with and at the same time protect your company.

Criminal/ True Fraud

These chargebacks are caused by the client intending to steal, or be dishonest, and be deceitful with by the client. The clients keep your products or use your services and use the chargeback process to obtain a refund on the entire amount, essentially similar to shoplifting.

  • Purchasing with Stolen Cards
    • Always ask for CVV and Billing Zip code (or the complete billing address) since most fraudsters would not have them.
  • Claiming that the Item was not Delivered
    • Burden of proof falls on the merchant. Chargebacks can be processed 120 calendar days from the date of processing. The key to fighting this is proper documentation which includes documenting conversations, and shipping/tracking info.

Friendly Fraud

Some clients have no ill-intentions regarding processing chargebacks.  This can be caused from miscommunication, confusion about the product, and/or slip from memory.

  • Confusing Credit Card Descriptor
    • Ensure that your credit card description has a name that your clients will recognize since the majority of chargebacks happen when clients are not familiar with the name or information
  • Poor Customer Service / Cannot Find Contact Information
    • Respond quickly and provide good customer service by opening lines of communication. Make sure that there is direct contact information that clients can easily find since they usually try to get hold of the company before initiating a chargeback.

How can Chargebacks affect my business?

Credit card issuing banks take chargebacks seriously. Having more than 1 percent of your charges reversed as chargebacks can get a business labeled as fraudulent. Not only can this damage your business’ image but can also result in loss of clients and revenue.

Chargebacks have both short and long-term effects on any merchant. When a chargeback is filed, clients get refunded and get to keep the goods while merchants lose revenue and potential profit. Merchants are also charged fees with every chargeback even if they are later cancelled.

Chargebacks also increase the cost of doing business from increased processing fee rates to terminated merchant accounts that could result  in inability to process credit card payments up to five years.

When do I need a Chargeback Program?

While each industry may differ, typically the accepted maximum chargeback ratio is 1 percent. Companies with excessive chargeback ratios and multiple warnings get put on a list that most payment processing companies tend to stay away from.

It is advisable that once you see your chargeback ratio increasing or spiking to speak with an expert and/or take precautionary measures.

When do I need a Chargeback Program?

Chargeback ratio, also known as the chargeback-to-transaction ratio, can be calculated by dividing the number of chargebacks with the total number of transactions. Here’s how:

When do I need a Chargeback Program?

  • Manage your chargebacks ratio before and after reaching the limit
  • Outline personalized strategies to reduce risk and manage chargebacks
  • Assist in fighting and disputing chargebacks, improving your chargeback ratio
  • Protect your revenue and enhance profits
  • Improve your business by highlighting weak points that lead to chargebacks
  • Improve your customer service, one of the easiest ways to reduce chargebacks
  • Detect and prevent fraud before it happens.
  • Process with instant accurate approvals so you can focus on other areas

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