Chargebacks Demystified:

What is a Chargeback?                                  

A chargeback is a transaction initiated when the customer contacts their bank and disputes a charge. This kicks off a multi-step process that incurs additional fees for your business (that you may not even realize is happening). The process goes as follows: 

1. Customer buys product/service
2. Funds are deposited into the business account
3. Customer contacts their bank to dispute the charge
4. Bank reverses the transaction and withdraws funds from business account
5. Bank charges the business a fee to process the dispute
6. Business gets hit 3x: loss of sale, the product/service, and the additional fees

If the customer’s bank and card network determine the chargeback is legitimate, then funds and fees are withdrawn from your merchant account. To dispute the chargeback, you must submit evidence within a set deadline (usually 20-45 days after the customer made their dispute). 

Long-term Impact 

A chargeback causes far more headaches than a refund. You don’t just lose the revenue: Once the customer initiates the chargeback, your account is usually charged a fee. Even if you successfully dispute the chargeback, the effort costs time, resources, and yet another fee that you don’t get reimbursed for. 

And that’s just the price of one incident. When chargebacks pile up, disputing them costs even more time and resources. The biggest problem, however, is the impact on your risk profile. When banks notice frequent chargebacks, they may: 

• Increase fees, processing rates, and interest rates
• Terminate your account 
• Place you on the Member Alert to Control High-Risk Merchants (MATCH) list. This prevents you from securing an account for five years. 

Account termination and the MATCH list can be triggered by a 1% chargeback rate, so it’s best to prevent them before they happen. 

Easy Refunds 

To prevent chargebacks, make it easy and straightforward for customers to do refunds instead. You’ll lose the revenue and a little time, but it’s certainly the lesser of two evils. 

Start by communicating your cancellation, return, and refund policies very clearly. More importantly, include very clear contact info and instructions for submitting a refund – if you provide an obvious path towards a refund, customers will take it. 

You can also avoid unnecessary refunds and chargebacks by including good billing descriptors on your credit and debit statements. If a customer sees a charge with an unclear merchant or product name, they’re more likely to assume fraud and act accordingly. 

Mitigation Software 

However, you don’t have to rely entirely on the customers to take initiative – that’s where Impact Payments’ support comes in. Our first line of defense is chargeback mitigation software, which monitors your transactions in real time. It identifies likely disputes and issues refunds automatically – this helps prevent customers from escalating things to chargebacks in the first place. 

24/7 Support 

If a customer does submit a chargeback, deciding your next steps can be a little daunting. That’s why Impact offers 24/7 support – our experts will walk you through the statement and break down what happened. If you do decide to dispute the chargeback, we’ll help you look out for hidden fees, gather the needed documentation, and meet deadlines. 

Moving Forward 

Every business experiences a few chargebacks. However, you can take steps to reduce them. The most important step is to figure out why customers want returns in the first place. We offer insight into your transaction history – if we can identify the patterns that lead to refunds, we can address them head-on.