We live in an era of digital payments, so merchants can no longer afford to avoid credit card payments. However, credit card payments have their fair share of challenges, with chargebacks being the most prominent. US merchants lose tens of billions of dollars every year to chargebacks.
Currently, it’s considered that for every $100 chargeback, a merchant actually loses $240. As the eCommerce and digital payments industry continues to grow, the problem only gets worse. Therefore, merchants need to understand what chargebacks are and how to prevent them.
A chargeback is a debit or credit card transaction that an issuing bank forcibly returns from a merchant’s bank account to a cardholder’s account after the latter disputes the charge.
Chargebacks are different from refunds. Instead of contacting the merchant and requesting a refund, the cardholder goes directly to their issuing bank and files a dispute.
The downside of chargebacks is that they cost money in additional fees.
Every time a cardholder files a chargeback, a merchant has to pay a chargeback fee between $15 and $100 per chargeback. Even if the merchant wins the chargeback, you still pay these fees and other administrative costs.
When the monthly chargeback rates rise above the predetermined chargeback thresholds by card networks, merchants are forced into inconvenient and costly chargeback monitoring programs. And if the chargeback rates don’t drop below the acceptable threshold, the acquiring bank may close the merchant’s bank account.
After account termination, the merchant is entered into a MATCH list (i.e. a blacklist) and will find it exceedingly difficult to open a new account even with a different acquirer for a period of five years. And even if they get a new account, it will be a high-risk merchant account with higher processing fees than a regular merchant account.
On the bright side, there are steps you can take to avoid chargebacks, including:
Most customers initiate a dispute with their issuing bank because it’s easy. Laying out your return and dispute process shows customers it’s easy and beneficial for them to contact you first. You can improve the return process by:
Pre-authorizing a credit card puts some cardholder funds on temporary hold. The hold can last for 31 days, depending on the merchant classification code. The customer cannot withdraw the held amount during this time, and the merchant doesn’t have the money until the charge occurs.
Until the funds are captured, the cardholder cannot dispute the transaction. And if the cardholder notices an unauthorized pre-authorization on their account, they can request the merchant to cancel it to prevent fraud chargeback.
Updating your shipping level will provide your customers with a better shopping experience. However, faster shipping doesn’t always translate into reduced chargebacks; if anything, chargebacks may increase. To reap benefits from upgrading your shipping level, you should keep customers up to date on costs and delivery times to avoid misunderstandings that may lead to chargebacks.
Long-term subscribers have different expectations from one-time customers. Merchants must be ready to respond fast to inquiries and initiate communication. Steps to take to prevent subscription chargebacks include:
About 20 – 40 percent of all chargebacks are caused by merchant error, including poor or confusing billing descriptors. Descriptors determine how your name appears on cardholder statements. Tips to optimize your billing descriptors include:
With so much on the line, merchants need help from an expert to fight and prevent chargebacks. Justt offers an end-to-end success-based solution that turns the frustrating and resource-draining process into a simple, hands-free affair. We achieve this through a combination of artificial intelligence and industry expertise to create a custom solution that intelligently and effortlessly fights and prevents chargebacks.