Merchants Stuck with Chargebacks

Let's face it. As a merchant the chargeback system is stacked against you. After all, the customers of the issuing banks are the card holders.

Merchants can dispute chargebacks. The merchant may even win the dispute. But, the chargebacks still remain on the merchant's processing statements and are included in calculations for chargeback percentages.

Certain industries are automatically considered high risk by banks because they carry a higher risk of consumer chargebacks or fraud. For example, ecommerce stores selling electronics are a particularly favorite target for fraudsters.

Other examples of high risk ecommerce industries include travel, adult entertainment, subscription sales, digital downloads, herbal supplements, cellular services, infomercials, telemarketing, collectibles, international charities, and auction sites.

Online merchants selling high ticket items such as furniture or jewelry are also high risk. The reason? A chargeback on a higher ticket item impacts chargeback ratios much more than a lower ticket item.

Surprisingly, a merchant with a quickly increasing sales volume in any industry can be considered high risk. A steep growth curve throws a merchant into a high risk classification because of chargeback concerns. More sales mean more potential chargebacks.

A chargeback occurs when a consumer calls the issuing bank and disputes a charge. The consumer has the right to dispute a charge up to 180 days after buying a product or service. Therefore, the bank is ultimately responsible for contingent liabilities of 6 months on every purchase made using a card.

There are many reasons for chargebacks. Some are valid. For instance, a consumer may not have received merchandise or a merchant may refuse to refund money to an unhappy consumer. Sometimes a consumer calls the bank rather than calling the merchant resulting in a chargeback being issued.

Sometimes, neither the merchant nor the consumer is to blame for chargebacks. Chargebacks may be caused by identity theft, fraud and cybercrime.

Millions of consumers are affected by identity theft each year. The American television show "Dateline" reports that a stolen identity, including all credit card and banking information, can sell for as little as $5 on the internet.

Within minutes, merchants can be targeted by fraudsters around the world buying items using stolen credit card information. Chargebacks ensue. The merchants and the banks lose money. And consumers are angry and frightened by the loss of their identity.

The best protection is to correctly manage chargebacks. Whilst chargebacks can never be completely eliminated, there are many excellent methods to keep chargebacks within an acceptable range. Work closely with your merchant account provider who will recommend specific solutions to reduce your risk of chargebacks and help protect your business.