Fraud & High Chargeback Rates Choking Your Company?

Fraud & High Chargeback Rates Choking Your Company? Here’s How To Prevent It

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High chargeback rates are a frustrating reality for many businesses today. These fees can add on a tremendous expense at the end of every payment period. Even if it isn’t your fault, you can end up paying a significant amount for them each year (ranging from $20 to $50 per chargeback).  From friendly fraud to misunderstandings over transactions, if high chargeback rates are choking your high-risk business, know that you are not alone.

Right now, businesses are enduring an increasing in chargeback rates. These unexpected charges are a detrimental element of business that can cause a massive money drain and poor customer service reputation. For high-risk businesses, chargebacks are especially worrisome, which is why we’re going to look further into the matter and how you can prevent it.

Why are chargeback fees so high?

Many high-risk merchants start processing with alternative payment providers like Stripe and PayPal. The chargeback fees from these alternative providers can be as low as $20 USD. Therefore merchants are often shocked at the cost of fees after transitioning to a merchant account. It is important to note that PayPal and Stripe serve low-risk businesses, hence the reduced pricing. Your account may be frozen for investigation should you receive even a couple of chargebacks. Merchant account providers are more flexible at accommodating a business with higher fraud-to-sale ratios.

 

Types of Chargebacks

Merchant errors (system errors that arise from your customer service department) are the most common form of chargeback claims. Unauthorized card use is another popular cause for claims. This occurs when individuals claim they never authorized the transaction or that their card has been stolen. Finally, when you hear about friendly fraud it involves consumers claiming that may forget or regret their purchase and try to initiate a chargeback.

All three of these chargebacks are surely issues you have endured as a merchant.

 

Even if you reverse a chargeback it still counts

 

Payment processors are liable for your risk

There is more financial and reputational liability with high-risk acquirers, so paying a penalty as high as $40 USD shouldn’t be a surprise. With a high-risk merchant account, for example, a $25 – $35 fee is applied every single time a customer calls their bank to issue a chargeback. That can add up quickly. If your chargeback-to-sale rate goes above 1%, your merchant account provider may request measures to mitigate risk. Ensure you have chargeback count as well as chargeback-to-sales dollar ratios under control. Payment providers now rely on both figures not just on the chargeback transaction count as was the case a few years ago.

Additionally, like anything credit-based, this chargeback percentage rate is also factored into new merchant account approvals. If your business is prone to high rates of 5% or 7%, this does not demonstrate you have fraud under control. A new payment provider will see your processing history and panic. Therefore, it will influence the fees and monthly costs you have to pay simply to get approved for a merchant account from an acquiring bank. High-risk merchants are subject to higher rates that will cover the disparity in the cost. Once your risk is under control, fees can be negotiated and more reasonable. It’s important to have six months of low chargeback levels.

 

Reversing chargebacks does not reduce your risk

In many cases, high-risk merchants often think that successfully disputed and reversed chargebacks will not count toward their fraud rate. This is wrong! Regardless of its outcome, once a chargeback has been filed it still counts towards their chargeback ratio. Visa and MasterCard enacted this policy; therefore, it is not under the control of your payment provider. A high chargeback rate could reflect poorly on your financial profile and result in a MATCH-list by Visa and MasterCard.

 

3 Tips for lowering high chargeback rates

Luckily, you can be proactive about high chargeback rates. Get out ahead of the fraud and fees before they get to you first:

    1. Prioritizing top-notch customer service is the most proactive thing you can do to keep your chargeback rate within reasonable levels. If you are customer-centric from the beginning, then you are already ensuring the buyers receive the experience they desire. Provide an email, phone number and mailing address so clients have multiple methods to contact and get their money back. Also, ensure that you have long opening hours and responses are within 24 hours to avoid customer frustration over delays.
    2. A clearly articulated, accessible, and detailed terms of service page right on your site limits liability. Therefore, avoid the fine-print angle and ensure everyone is aware of unexpected charges that could persuade a chargeback. Finding information about refunds on your website should not be challenging. Develop an easy to find refund policy on your website and clearly state the number of days for a client to get their money back. Equally important emphasize how many days it will take for the customer to receive that refund. Many people are impatient. Consequently, they call their banks asking for refunds and this is how you end up with a refund and a chargeback for the same transaction!
    3. Hire a chargeback management company. Always keep compelling evidence on hand at all times while simultaneously working with a third-party service that keeps you protected. They can alert you to suspicious transactions before they become a chargeback. Also, a payment provider will more likely keep your merchant account open if you can show a contract with a third-party service. These types of agreements work in your favor.

 

Take action against chargeback fraud today

As we have discussed, all fraud waged against your business cannot be prevented and not all chargebacks are your fault. They are part of operating a business today, especially if you sell supplements, rebill clients or offer free trials. Spend time identifying the source of your chargebacks. Business can become lucrative and protected with dedication to customer service, transparency, and bringing on outside expertise on your behalf.

Are you concerned about your high chargeback rates and need to take action before you lose your credit card processing? Feel free to reach our team for help.

About the author

I serve as the portfolio manager and operations assistant at DirectPayNet. Prior to helping high-risk merchants navigate credit card processing and compliance, I gained extensive experience in affiliate marketing for several online retail verticals (including education, health, insurance, sports and gaming). In 2016, I became a certified fraud examiner (CFE). You can email me with any questions about merchant accounts.