The Cost of Chargebacks
Though accepting credit card payments is beneficial to a business, chargebacks can cause major drawbacks. If a customer disputes a transaction for one reasonor another, you will have to go through a rather complicated process, which not only loses you a sale, but costs you otherwise unnecessary fees. Chargebacks involve quite a number of stringent processes and complex procedures, which
may end up with you on the losing end.
Credit card online transactions are considered to be CNP or Card Not Present transactions. Generally, a merchant account agreement specifies that the merchant will be 100% liable for any type of possible online fraud that might happen.
Sadly, whether it is an actual fraudulent transaction, or a case of malicious attempt by a cardholder, the merchant will have to face the consequences. If it is determined that there is not enough proof to back up the transaction, the merchant will lose the sale and will be subjected to chargeback fees, which will range anywhere from $50 to $75 or even more. Moreover, say you shipped the merchandise to your customer through overnight shipping; you will have lost another $35 to up to $100 on top of the sales revenue you lost.
It is unfortunate that online fraud, or fault on the side of the merchant, is not the usual cause of chargebacks. Credit card institutions are usually focused onkeeping their cardholders happy. They also would like customers to be appeased so that they continue use their cards to make purchases online. Theseinstitutions value their cardholders' best interests, such that any form of dissatisfaction or complaint usually results in chargebacks - all at the expense of honest merchants.
The cost of chargebacks does not end only in losses in financial aspects. Racking up chargebacks has even worse consequences on the part of the merchant. During physical transactions, where both the cardholder and the card are present, it is the credit card institutions who take sole responsibility in cases of chargebacks. However, during online CNP transactions, merchants are solely responsible. Having too many cases of chargebacks will lead to steeper chargeback fees, as you will become labelled by the credit card institution as a highrisk merchant.
Not only that, but having an excessive number of chargebacks can also lead to the potential termination of your online account. This will cripple your ability to accept credit card payments, and can lead to severe losses to your business. It is important to note that merchant accounts that become suspended due to high number of chargebacks are almost always impossible to restore. If you are a small business operating on rather thin profit margins, chargeback fees, increases and suspension will all have detrimental effects. Even if you keep your chargebacks to only 1% of your charges, the chargebacks
you receive will still require you to spend time in retrieving details about the sale and in coming up with the necessary documents for proof, as requested by the processing bank. Any time that you spend away from the main focus of your business is a potential loss that can never be recovered.
Chargebacks can cause many problems for a merchant. The expression "guilty unless proven otherwise" is probably the best way to put it. The credit card industry has made it easier for consumers to file chargebacks and transaction disputes, while the merchants are left with little industry support, if any.
As a merchant, the only route for you is the route that avoids these situations as much as possible, you will need to protect your site and your business from potential fraudsters and malicious buyers. Also, you need to provide the merchandise at its very best or as described, as well as the best kind of service, in order to avoid dissatisfied customers who will dispute their transactions.