Chargebacks

A chargeback happens when a customer disputes a credit card transaction and receives a refund for their purchase.
simple chargebacks explanation
Simple and clear explanation of how chargebacks work

Card brands (Visa, MC, Discover, AmEx) watch chargebacks like hawks. To keep credit card processing, a business has to keep their Chargebacks below 1% of total volume and/or not exceed 100 instances per month.

Each dispute will cost $20-$100.  If chargebacks exceed 1% for one month, large fines can be imposed on the merchant.  If it keeps happening for several months, the merchant credit card processing account will be terminated and the merchant will be placed on the TMF aka MATCH list.  Be deathly afraid of the TMF/MATCH list, it’s a black hole that’s very difficult to crawl out of

TMF - MATCH list
TMF – MATCH list

Merchant Service Providers that accept High Risk merchant accounts have tools for chargeback management. They are:

  • Chargeback Prevention
  • Chargeback Alerts
  • Chargeback Dispute (aka Representment)
1. Chargeback Prevention

It’s easier for some and trickier for others to prevent chargebacks in the first place.  Customers will dispute a credit card transaction if their credit card was stolen and someone bought your item, if they’re unhappy with the product, never received it or just don’t recognize the statement line item.  Try to avoid this by implementing a few rules:

  • Don’t make promises you can’t keep regarding product-quality or services
  • Configure fraud filters and alerts to the highest setting
  • Ensure your business description is recognizable because it’s the name  that a customer sees on their credit card statement
  • Ship product with confirmation and require a signature
  • Insure that the Customer Service contact information (phone #s, email address) is visible and available to a consumer
2. Chargeback Alert

When a customer calls to dispute a transaction, you can receive be notified/alerted in real time of the pending chargeback. By signing up for this services with your processor or a company specializing in Chargeback Alerts you buy yourself time to review the actual transaction and contact the consumer to resolve a problem and/or issue a refund.

3. Chargeback Dispute (Representment)

Banks have a specific process by which they will accept evidence to dispute a customer’s claim.  It can be complicated, but companies like Chargebacks911 and Verifi will help merchants through this process with a very good success ratio.


In Conclusion: High Risk merchants must always be aware of chargebacks.  They are costly, but understanding them to minimize their occurrences beats the alternative of losing credit card processing completely.  Before contacting a company that specializes in chargebacks, make sure that your payment processor doesn’t offer it automatically (a lot of them do).  Moreover, many credit card processors automatically initiate a chargeback dispute

 

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