Payment processing

Understanding Credit Card Chargebacks

Chargebacks. It’s a word few merchants like to hear! Virtually everyone who deals with payment processing has heard this word bandied about, and they all know it’s not a pleasant thing.

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But what exactly are credit card chargebacks, and why are they such a bad thing?

The Typical Chargeback

Chargebacks occur when customers dispute charges on their credit cards. They go directly to the card issuer, rather than to you as the merchant. In most cases, the customers claim the charges made are incorrect or fraudulent; they may argue their cards were stolen or they never visited your shop, let alone purchased anything from you.

When a customer disputes charges, the credit card company then withdraws the funds from your merchant account and holds them hostage while the claim is being investigated.

While it’s important for credit card companies to protect their customers, chargebacks leave the merchant on the hook. Often, the product has shipped or been delivered or a service has been performed, which essentially means the merchant has “lost” on the sale. There’s no way to recover the product or service, and you won’t be paid for them; you must simply write off the loss.

Chargebacks and Fraud

Credit card fraud and chargebacks are on the rise, and the trend shows no sign of slowing down. Online shopping has resulted in more credit card fraud. Hackers easily steal customer information from any number of places, in any number of ways. While businesses scramble to keep information safe, hackers breach security measures and make off with sensitive customer data—including credit card information.

Shopping in a physical store is no safer, however! Lots of reports detail shady businesses using secondary card readers to steal customer information. They later sell this information to others or use it themselves to perpetrate fraud. While customers and businesses are increasingly aware of these dangers and taking steps to protect themselves, fraud is predicted to continue climbing.

How It Affects You

Clearly, fraud affects everyone. Customers must be protected. Both individuals and business owners should take steps toward protecting credit card information. It’s one reason you should be sure any payment processing solution you adopt comes with great security options to protect both you and your customers.

Credit card chargebacks, however, often unfairly punish a merchant. While you can take measures to prevent fraudsters from making purchases, sometimes these measures aren’t enough. You as the merchant are as much a victim of fraud as the customer, and you’re often the one who ends up paying the high cost of fraud.

While the credit card companies ensure customers get their money back, you provided a product or service you won’t be paid for. The loss has been passed on to you, the merchant, instead—even though you did nothing wrong!

It Gets Worse

Suffering a loss for processing a fraudulent transaction is not good news for any merchant. Unfortunately, it gets worse from there: Some merchants are at higher risk for credit card chargebacks. Some types of businesses are simply more likely to be targeted by fraudsters. You could end up with a rash of fraudulent transactions that you must take the fall for. If that’s not bad enough, chargebacks sometimes cause merchants to default on their payment processing accounts!

Even worse? Sometimes, the customers themselves are the fraudsters behind the chargebacks. They purchase products or services, wait until they’re delivered, and then dispute the charges with their credit card companies!

Get Protection

What can you do to combat credit card chargebacks? There are a number of anti-fraud measures you can take. For one, you should ask in-depth questions about security when choosing a payment processor. You can also look for a provider that offers protection for merchant accounts when chargebacks occur. These measures canhelp keep your business and your customers safe.



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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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