Chargebacks are the single biggest problem high risk merchants face with respect to payment processing. Merchant service providers expect high risk merchants to have a certain amount of chargebacks every month. For this reason, there is a chargeback threshold that merchants should not cross in order to keep processing.
The threshold is 100 chargebacks or one percent of total processing transactions during a processing month. If a merchant receives 100 chargebacks or chargebacks totaling more than one percent of their total transactions, whichever comes first; they are in violation and are subject to immediate shutdown or other corrective actions such as adding or increasing reserve amounts or having to go through chargeback reduction protocol including a thoroughly written chargeback reduction plan that must be approved and monitored by the payment processor.
A consumer can initiate a chargeback for any reason and laws are in place to protect the consumer leaving the burden of proof, in most cases, with the merchant. In any case, there is a fee charged to the merchant for each reported chargeback that in not recoupable regardless of outcome. Additionally, funds equaling the value of the chargeback in question are held until the merchant provides sufficient proof that they have acted in accordance and satisfy the acquiring banks chargeback inquiry.
Some of the most common chargeback reasons
As previously stated, consumers can initiate a chargeback for any reason, warranted or not. However, there are certain circumstances that are common and reoccurring reasons why consumers make chargeback claims. Some of those reasons are:
- Credit card was double-charged
- Consumer was unaware they are on recurring billing
- Consumer did not receive a credit or refund
- Product or service was not as advertised
- Consumer did not receive goods or services as promised
- Product received is damaged or defective
- Consumer did not authorize purchase
These chargeback reasons are relatively self-explanatory. Consumers have a certain expectation from your company and your product or service when they purchase from you. If you do not live up to that expectation by not delivering, poor quality, unresponsiveness, or deception they are going to take action because no one wants to be or feel ripped off. With today’s popularity of social media some consumers take things a step further by writing about these experiences on blogs, forums, or websites such as Rip-off Report. You want to avoid these situations at all cost because it hurts your bottom line, ruins your reputation, and destroys brand equity.
Some of the best practices to preventing and beating chargebacks
- Have well thought out terms and conditions that are clear and concise. The easier it is to understand the terms and conditions of a purchase; the harder it is for a consumer to say they do not understand what they are getting themselves into.
- Make sure your return and refund policy is easy for the consumer to execute and understand. The best companies have a policy that favors the consumer in terms of giving them a reasonable chance to handle this action in a timely manner without having to take excessive, onerous steps to complete it.
- Use a shipping courier that will capture a signature upon delivery. It’s hard for a consumer to dispute a charge because they haven’t received something if it was signed for.
- If you are taking payment over the phone, through the mail, or keying-in a transaction have the consumer complete and sign credit card authorization form. You can ask your processor for this form. If they don’t have one; they can tell you what information needs to be captured on the form so that you are in compliance and you can create it yourself.
- Have the consumer submit a legible copy of their driver’s license as well as the front and back of the card being used to make the purchase. Keep this on file with the signed receipt or credit card authorization form.
- Be easy to reach and highly responsive. Make sure that your contact information is highly visible and that consumers know when and how to reach you. Try to solve their issues as quickly as possible and keep record of all interactions with the consumer.
- Record the entire consumer payment information capture when taking payments over the phone.
- If you are going to bill the consumer on a recurring basis make sure there is no confusion as to when they will be billed, how much they will be billed, what they will receive once they are billed, and when they should expect to receive their product or service.
- Make sure your website captures consumer payment data information in a way that is PCI compliant. If you’re out of compliance you’re not going to win a chargeback dispute. Your merchant service provider should be able to help you maintain PCI compliance.
- Lastly and probably the most important, make sure your marketing tactics are well thought out so that they can in no way be perceived as deceptive. Honesty is the best policy is you believe in the longevity of any type of relationship and if you are found to have deceptive marketing tactics that fool the consumer your business most likely won’t last long.
Using a merchant service provider that has significant experience working with high risk merchant accounts is probably the best payment processing partner you can have to help you avoid chargebacks. Painless Processing is one of those merchant service providers and they have experts readily available to have an in-depth discussion of all aspects of payment processing such as chargebacks so that you can feel comfortable knowing you are working with a payment processor that understands your needs and can deliver to meet them. Contact Painless Processing today to have all of your payment processing questions answered.