What are Credit Card Chargebacks?

Consumer use of credit cards is on the rise, especially in eCommerce stores. Along with this uptick of credit card payments are also credit card dispute transaction chargeback, the bane of many eCommerce merchants who need chargeback prevention services. If you are not familiar with credit card chargebacks, they occur when a customer disputes a charge on their card to the bank, not the retailer from whom they purchased goods or services. Too many chargebacks can affect your business’ ability to process credit card payments, so it is very important to launch your eCommerce shop with some sort of chargeback protection for merchants.

The Importance of Chargeback Protection for Merchants

If your industry or business encounters a higher rate of credit charge chargebacks than most other retailers, the acquiring banks that accept and approve credit card payments will either freeze the merchant account that collects the funds from credit card payments or sharply increase the credit card processing rate for that merchant. There are many reasons a consumer may file a return item chargeback. There are over 50 chargeback reason codes between all the major card brands, and while the list is too long to cover them all here, we will address what exactly a chargeback is, the most commonly abused reasons for a credit card chargeback dispute transaction, chargeback prevention services, and how to fight credit card chargebacks.

 

The truth is, credit card chargebacks can occur for a variety of reasons, but one thing is for certain: chargebacks account for revenue loss.

While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures to help you stop chargebacks in their tracks.

Stay ahead of credit card chargebacks with nontraditional merchant accounts that offer chargeback protection for merchants – but first and foremost, the most important tip we have (especially for those business owners in nontraditional verticals) is to be sure that your company chooses a secure nontraditional merchant account to deflect many of the stressors that come with credit card chargebacks and for all your payment processing needs.

What is a Refund Versus a Dispute Transaction Chargeback?

Not providing a refund can cause an unwanted chargeback, despite any systems of chargeback protection for merchants, which can be very detrimental to a merchant’s long-term goals. A chargeback is a refund that the merchant is forced to give, as opposed to a refund voluntarily given.

If a company’s credit card chargebacks exceed 1% of their total sales, you could end up pay fines or even have your merchant account shut down completely. Once you’re in credit card chargeback trouble, applying for another merchant account becomes even more difficult, especially for those who need a nontraditional merchant account, and many payment processors will deny your application.

chargeback prevention services

Other payment processing companies may take you, however, they’ll likely charge higher fees that can be double, and you’ll be requested for a larger reserve up front.

Every retailer attempts to create a refund policy that will protect each purchase. Most payment processors prefer at least a 30-day unconditional refund policy. Many insist their customer take back the unused part of their merchandise. No merchant wishes to be taken advantage of having their product used and have the customer get all the guaranteed benefits, only to then request a refund just because consumers can refund it.

Think of it this way, managing refunded products can prove expensive in several ways. Your payment processing company may charge you for the effort to receive and track your returned items. Clients often get lazy or upset with the concept of sending back products, because it’s time-consuming to pack and arrange shipping; and sometimes clients are averse to paying the postage charges to ship a returned item.

Some payment processors are now requiring that merchants provide refunds without getting the unused part of their merchandise back. The idea is to take a long-term approach, even if it means taking a couple of hits along the way. The goal is to assure that customers don’t contact their bank card company and initiate credit card chargebacks. Needless to say, credit card chargebacks are expensive, time-consuming, and resource draining. They’re burdensome for all merchants, but smaller retailers can especially struggle if they do not have the necessary in-house expertise to make an impact.

How Can a Refund Policy Prevent Credit Card Chargebacks?

Believe it or not, a strict return policy can actually hurt your business more than a more flexible policy. Dissatisfied customers or customers disputing charges due to fraud will not accept a no from you if they are motivated and angry enough to appeal to their credit card provider for a return on their funds. When the banks need to refund your customers instead of you, you end up paying more in higher processing rates or losing business because the bank froze your merchant account. If you are looking for more flexible refund/return solutions here are a few things you can do:

  • Set up a Solid Product Page. When listing your products, make sure descriptions are accurate and that you have clear and accurate imagery depicting the product at all angles. Being thorough with your product presentation will prevent users from disputing a charge due to misrepresentation, counterfeit merchandise, or not as described/defective merchandise claims, which in turn prevents a filed chargeback.
  • No Strings Attached Cancellations. If a customer has to cancel their recurring payment, or their one-time order, make sure they have a clear idea of how to do that on your site. If you tack on terms like early cancellation fees, this will only cause the customer to circumvent your process and go directly to their credit card provider and chargeback the purchase.
  • Offer Return Options. No one wants to lose a sale outright, and your customers may be willing to give your other offerings a chance instead of demanding their money back. You could offer toaccept a return for store credit or for exchange for a similarly valued product. The idea is to keep that sale on your books and avoid credit card chargebacks, in whatever way possible, and to impart satisfaction and trust on to your customers
  • Use Plain and Simple Language. Your customers are less likely to file credit card chargebacks if they can clearly understand your return/refund policy. If you accept returns, make sure you indicate a time period when they will be accepted. If they will only receive a store credit for their return, make sure that is clear in the policy. Also, outline any additional potential charges incurred by the customer. If they need to send it back, who will cover shipping fees? Will there be a restocking charge to accept the product back in inventory? Use the KISS principle: Keep It Simple, Sweetie!
  • Define “All Sales Final” Situations. If you are unable to accept goods back due to seasonality or other extraneous circumstances, you need to indicate that on your product page. If the customer knows that the sale is final, they will consider the purchase more and be less likely to want to return the product.

Why Seek Chargeback Prevention Services with MPAC?

The truth is, credit card chargebacks occur for a variety of reasons, but one thing is for certain: credit card chargebacks account for revenue loss. While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures and chargeback protection for merchants to help you stop credit card chargebacks dead in their tracks.

We’ve got you covered on all the ins and outs of payment processing question, concerns, and merchant accounts – but we also care about the longevity of your merchant account and the overall success of your business – which is why keeping a finger on the credit card chargebacks pulse is imperative.

Implement some of these tips and you’re sure to see a reduction in credit card chargebacks. That said if you found yourself in a situation where you are paying high rates for credit card processing, or a payment processor has frozen your nontraditional merchant account and are holding funds outright, get in touch with us about nontraditional payment processing solutions. We have relationships with 20+ acquiring banks and can help negotiate the best rates for your nontraditional merchant account.