Payment processing

Credit Card Chargebacks - 5 Things You Need To Know As A Merchant

credit card chargebacksCredit card chargebacks refer to the process by which a transaction can be reversed and money that has already been paid “charged back” from the merchant. A consumer who has bought goods using their credit card can, if the merchant fails to comply with secure card processing practices, issue a chargeback using their credit card company and have the merchant pay back the money already paid to them. Typically, the chargeback is not only just the total amount that was needed for the original transaction, extra fees, and service fees are charged to you as well.

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There are few chargebacks which are issued in favor of a merchant, accounting for roughly 21% of merchant credit card chargebacks. Most of them are against the merchant and that is why it is important to understand the negativities of credit card chargebacks, regardless of the size of your business, chargebacks can affect your bottom line. Be aware of how you can protect yourself through the right payment processing provider and up to date payment solutions. Chargebacks can be a difference maker in your annual profitability. 

1. Loss of profit

When a chargeback is issued against a merchant, they have to pay back the money the buyer had paid them and typically additional fees along with it. For the most part, chargebacks, not only taking up time and resources to provide the proper documentation, but end up costing you more than you had originally received from the transaction.

2. Reduced Credibility

One of the most important things every business needs is credibility. This is an invaluable asset as it is what determines the willingness of a customer and their eventual return to your business. Customer experience and credibility, especially when dealing with money, will be the difference maker because creating a loyal customer base, and dissolving one.

When a particular merchant has been subject to frequent chargebacks, this is will be reflected in customer reviews online, and loss of customer base. Bad reviews, whether online or through word of mouth, lead to customer distrust which, if not addressed could lead to certain business death.

3. Dissolution of Merchant Account

No bank wants to deal with a merchant who has a bad rapport with customers and is frequently getting chargebacks. This is the reason why most banks set a maximum limit on the number of chargebacks allowed on a merchant per year and if the chargebacks against a particular merchant exceeds this number, then the bank may dissolve their merchant account.

Such an occurrence would seriously disadvantage the business. Proper education of chargebacks, and the knowledge to properly accept credit card transactions will greatly benefit your ability to reduce chargebacks each year.

4. Avoidable

One of the most important parts of credit card chargebacks is knowing that they are avoidable. This doesn't mean that you will never get a chargeback again, but it means that you can lower your monthly, and annual chargebacks by following the proper processing practices.

Make sure that the name of your business shows up on their monthly statement. Simple confusion such as separate business name and legal name can cause the customer to chargeback the expense.

5. Loss Of Business

Take the time to make the proper adjustments to your business, in order to protect yourself from credit card chargebacks. It may be the simple adjustment of updating your payment terminal to chip and pin, ensuring your business name matches that which is on the customers monthly statement, checking proper identification and signature style etc.

Every merchant needs to take adequate precautions to avoid becoming subject to too many chargebacks as this can spell doom to your business.


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Matt Moore

As the President and Co-Founder of BNA Smart Payment Systems, Matt is responsible for the company’s strategic direction, daily operations, and growth. Entrepreneurial by nature, he brings a wealth of sales and marketing experience earned from over 36 years in business. He has developed, implemented, and directed international sales and marketing strategies, established strategic alliances with international companies, and demonstrated leadership in the electronic payments market. Prior to BNA, Matthew served at the senior levels of major EFT/POS companies, helping them increase sales and optimize customer service. Matt is also a father of three, a fitness enthusiast who does power lifting and CrossFit, and he enjoys weekends at the cottage.

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