What is a Chargeback and How Do They Affect Merchant Businesses?

The term “chargeback” refers to what happens when a charge is returned to a payment card (a credit or debit card, for instance) after a customer successfully disputes the chargeChargebacks can occur on bank accounts and credit cardsalike and are awarded to customers for various reasons.

Chargebacks are different from voided transactions in that voided transactions never actually complete. They only take place after the charge has been completely processed by the merchant services provider and settled with the merchant.

Fortunately, chargebacks are usually only used as a result of extreme circumstances; however, some businesses face greater risk than others of having charges disputed by customers.

Why Would Businesses Receive a Chargeback?

There are many possible reasons why customers might require chargebacks. One of the most common reasons is because a customer returned an item, but this is not the only reason customers request chargebacks.

Another common reason is when accidental duplicate charges occur. This is when a customer is charged twice for the exact same transaction and is more common than many retailers realize.

Fraudulent charges are also commonly cited reasons for customers to request chargebacks. This occurs when the cardholder’s information has been compromised through identity theft or credit card fraud and someone else has made purchases with their card.

Expired credit or debit cards are other possible causes of chargebacks. Expired credit cards can be accepted in the right circumstances, but require prior approval from the issuing bank. Failing to do so will likely result in a chargeback for your business.

What Happens When a Customer Files a Chargeback Request?

Chargebacks may be initiated by the issuing bank or the customer. What usually happens is that the customer goes to the bank that issued their credit card and makes a claim. The bank then investigates the claim and determines whether a chargeback is warranted.

What are the Effects of Chargebacks on Merchant Businesses?

The first effect is the fee associated with the chargeback. If the incident involves the customer filing a complaint and keeping your merchandise, then you’re out the fee involved plus the cost of your lost merchandise (or the loss of revenue for the item or items).

If your business receives an unusually high number of chargebacks, your bank may designate your account as a high-risk merchant account. What this means to the merchant services provider is that your business carries a higher-than-average risk of receiving chargeback complaints and awards when compared to other merchant businesses.

In extreme cases where businesses make no effort to curtail chargebacks or reduce the number that occur, banks may terminate merchant accounts.

How Can You Prevent Chargebacks?

Prevention is always the best cure when it comes to avoiding chargebacks. As a business, there are steps you can take to reduce the number of chargebacks you receive:

  • Verify customer signatures on the backs of cards and do not accept cards that are not signed.
  • Check that the signature on the back of the card matches the signature on the credit card slip.
  • Check for identification.
  • Verify card expiration dates to make sure the card has not expired.
  • Make sure your business is compliant. This can be accomplished easily by working with a merchant services provider that offers the latest technology when it comes to PCI compliance when it comes to payment processing and bank and credit card transactions.

Finding the right partner for your merchant services needs can make all the difference in the world for helping you prevent chargebacks and avoid the expense and problems they can cause. Contact BankCard Services today to learn more about our merchant services and how we can help your business. We may even be able to help if you’ve been designated a high-risk merchant by other merchant services providers.

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