One of the most challenging concerns for a business can be revenue loss due to consumer credit card problems. If a consumer argues that there was a faulty credit card transaction with a business, the consumer’s bank files a chargeback to refund the money from the business’s account. This process is referred to as a chargeback — and for the business owner, chargebacks are a costly part of accepting credit card payments.
Understanding the Term
Any business that accepts credit card payments for goods or services will experience chargebacks. The chargeback concept simply refers to disputes about the consumer’s credit card charges. A business might think that issuing a refund is not a big deal and give in to the bank request for a refund. But all chargebacks have potential to cost a company significantly in terms of product loss, profit loss, fees, or penalties. More importantly, to ignore chargebacks is unforgiveable, and potentially fatal for a business.
Types of Chargebacks
Small businesses can experience a variety of chargeback situations. A credit card charge might get entered twice, and the buyer intended to pay for only one purchase, so he disputes the duplicate charge. Consumers might claim that their merchandise never arrived, that it was the wrong product, or that their card was stolen, and so they ask the bank for a refund. A cardholder might say he never ordered the item and, therefore, wants the charge reversed. Each of these circumstances involve a consumer going to the credit card company or bank instead of asking the business itself for a refund.
The Costs for the Business
Because the chargeback system is designed to provide protection for buyers (against fraud, dishonest businesses, or shoddy merchandise), it has a number of negative effects on merchants. Businesses are charged a fee per chargeback, which pays for the communication between lending institutions (the customer’s bank, the business’s bank, and the credit card company). Of course, the business also loses the profit from that sale, and loses the item that was shipped. And the business’s bank may even freeze or terminate the merchant’s account if there are too many chargebacks within a month.
The Value of Careful, Honest Business
No business can protect itself 100% against crime, fraud, customer dissatisfaction, or even chargebacks. But it is the duty of all businesses to use care in transactions. A business can avoid chargebacks by paying very careful attention to the details of credit card purchases, providing top-notch customer service and good refund policies, using reputable shipping services, and responding to complaints.
- Card Not Present Fraud
- Acquiring Bank
- Address Verification Service
- American Express Chargeback Reason Codes
- AVS Mismatch
- Chargeback Process
- Chargeback Reason Codes
- Chargeback Representment
- Chargebacks Without Notification
- Code 10 Authorization
- Direct Response Advertising Chargebacks
- How to Avoid Chargebacks
- How to Fight Chargebacks
- Interchange Fees
- Interchange Rates
- Issuing Bank
- Mastercard Chargeback Guide
- Mastercard Chargeback Reason Codes
- Not As Described Chargebacks
- PayPal Chargebacks
- Prevent Chargebacks
- Square Chargebacks
- Visa Chargeback Reason Codes
- What is a Merchant Account Reserve
- What is Chargeback Fraud
- Why Cardholders File Chargebacks
- Credit Card Fraud Detection
- Fraud Detection Techniques
- Friendly Fraud
- Managing Recurring Transactions