What are Chargebacks, and Why They Matter to Your Small Business

Chargeback Protection

Chargebacks continue to be an ever-growing problem for businesses. According to a new report – 2018 Identity Fraud Study – by Calif.-based research firm Javelin Strategy & Research, online fraud is now 81% more likely than fraud at the point of sale. The study also discovered that 16.7 million people have had their identities stolen and fraudulently used last year; this is the most since the firm started tracking the data in 2003.

The firm describes 2017 as “a runaway year for fraudsters”, and the future does not look more secure. Al Pascual, senior vice president research director and head of fraud and security for Javelin Strategy & Research, explains that the amount of valid information fraudsters have on consumers means their attacks will continue to be more and more complex.

What are Chargebacks?

Essentially, a chargeback is the successful reversal of a payment after a customer disputes an item on his or her account transactions report. As a small business owner, chargebacks are not only frustrating, but they are also a threat to your livelihood. A recent study by ClearSale revealed the most common reasons customers file a chargeback:

  • 4% file because the product did not meet the website description
  • 4% file because the product did not meet the consumer’s expectations
  • 15% file because the retailer shipped the wrong product
  • 26% file because the product never reached the customer
  • 30% file because the purchase was made with a stolen credit card

How do Chargebacks Affect Your Business?

In some cases, chargebacks are the result of friendly fraud. Friendly fraud involves the consumer deliberately making an online purchase with his or her credit card and then requesting a chargeback from the issuing bank after receiving the purchased product/service. They are not only reunited with the funds, but they also keep the product or service. According to a recent study, 80% of cardholders filed a chargeback simply because they did not have time to request a refund from the merchant.

Unfortunately, chargebacks have both short and long-term costs and consequences for merchants:

  • Each chargeback results in a fee for the merchant, ranging from $20 to $100.
  • When the consumer files a chargeback and keeps the product/service, the merchant loses revenue and future, potential profit.
  • If chargeback rates stay above the acceptable threshold, the acquiring bank may decide to terminate the merchant account.
  • While winning a chargeback dispute does allow the merchant to regain profits, it does not improve the merchant’s chargeback-to-transaction ratio.

Where to Find Chargeback Protection

If your business is already struggling with the burden of high chargeback rates or your merchant account has been terminated, consider seeking the services of a high-risk provider. Regardless of your industry’s risk of fraud and chargebacks, your business can still find the merchant account it needs. Depending on the provider, you should also be able to find the chargeback protection and prevention program you need to have a secure and profitable 2018.

Author Bio: Electronic payments expert Blair Thomas co-founded eMerchantBroker, serving both traditional and high-risk merchants. His passions include producing music and traveling to far off exotic places.

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