How Refunds on a Merchant Account Keeps Chargebacks Low

For both domestic and offshore merchant accounts, it is vital that companies keep chargeback rates low. The reason is simple. High chargebacks put your merchant account in jeopardy. And without merchant account processing, your business tanks.

It used to be that offshore merchant accounts had a higher tolerance for chargebacks than accounts in the United States. Those days are gone. Offshore merchant banks are just as likely to insist on low chargebacks as those in the United States.

There are several methods to maintain low chargebacks on an offshore or domestic merchant account. Managing refund requests is one way.

It generally serves your long term business interests to have a liberal refund policy. In other words, if customers are not satisfied, give the money back. Particularly if you sell a lower ticket product or service.

Now lots of merchants get upset about this suggestion. They assert that some consumer requests for refunds are fraudulent. For example, a customer may claim merchandise was never received. Or the merchandise was defective in some way. Or any number of reasons a consumer might give for requesting a refund.

Some merchants say it’s simply a matter of principle. They are not going to give a refund if they suspect the consumer is not being truthful.

Of course, not all requests for refunds are untruths. Sometimes, there are valid reasons for the request.

Still in all, there is no doubt that there is a certain segment of consumers who know how to “play” the system. In fact the industry has a term for consumers who manipulate the issuing banks into approving chargebacks. The term is “friendly fraud.” Sounds pretty innocent, doesn’t it? But, it’s far from innocent and friendly fraud costs merchants millions of dollars in losses each year.

In any event, suppose you refuse to give a refund. What’s the customer going to do? That’s right. They’re going to call their credit card company and dispute the charge, resulting in a merchant chargeback. Even if the merchant eventually wins the chargeback dispute a month or two later, the chargeback will still be reflected on previous months’ processing statements.

Lots of consumers never call the merchant asking for a refund. They simply call their credit card company. That’s always going to happen. There’s not much a merchant can do with these customers. Although, some issuing banks are getting better at insisting consumers work it out with merchants before issuing a chargebacks, a certain segment of consumers will lie and still get their way with the banks.

But, if a consumer comes to you first requesting a refund, you are wise to accommodate the request. Weigh the cost of a refund against the possibility of driving up charge back ratios on a merchant account. Sometimes, you just have to eat the cost of a refund. In the long run, it’s a better choice than losing a merchant account.