One of the most stressful aspects of accepting card payments is getting a chargeback. This is the technical term for a payment reversal that was not initiated by the merchant. It happens when a customer has paid using a credit or debit card, but for any of a variety of reasons, the bank ‘reverses’ the payment and takes the cash back from your business, and puts it into the customer’s account. A reversal fee is then ‘charged back’ to you, the merchant.
Chargeback fees are, in a way, the digital equivalent of a bounced check, and they can be costly. They are intended as a security measure, and they are meant to protect consumers from card fraud. Unfortunately, they are often based on algorithms and automated processes. Because these processes don’t always have a human element at the onset, they can sometimes reverse genuine payments as well, which inconveniences your business.
Certain geographical locations and certain industries are known for having high chargeback fees. These fees cost merchant processors a lot of money, since they have to absorb the loss without passing it on to customers. Some merchant processors label these regions or business-types as ‘high risk’ and are reluctant to process payments for businesses that trade within those spaces.
There are four main reasons for chargeback fees. The first one is actual card fraud, where a consumer tells the bank that his or her card was used without their consent. This may have happened due to physical theft, phishing, or skimming. Another reason is a returned purchase. In such cases, the customer demands a refund and the merchant absorbs the cost.
Sometimes, a customer orders a product but doesn’t receive it. If they can prove their delivery didn’t arrive, then the card issuer will reverse the transaction and push the reversal charge to the merchant. The fourth trigger is a technical hitch. This is believed to be the most common reason.
Glitches can lead to a card being charged twice. When this happens, the bank will reverse the doubled charge, but there will be an extra fee for reversal, and this fee will be charged to the merchant’s bank account. On other occasions, the card issuer automatically blocks certain transactions due to location, volume, or frequency. Costs will be pushed onto the merchant.
When a bank issues a reversal on a card payment, your business account will be charged. The customer’s payment will automatically be withdrawn, and chargeback fees will be deducted from your account. You will lose the value of the transaction plus an extra reversal fee to the bank. Unfortunately, repeated reversals can negatively affect your credit rating.
This is because multiple incidences of chargeback can lead to your business being declared “high-risk.” While chargebacks are mostly automated, it can also be requested by a customer. Consumers can question card transactions for up to two years, though the average window for most banks is 6 months. As a business, you should keep transaction records, just in case. For more information about chargebacks or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.