High Risk Merchants Keep Chargebacks Low

One of the biggest mistakes made by high risk merchants with recurring billing models is making it hard for customers to cancel subscriptions.  The fact is that difficult cancellation procedures drive up chargebacks which, in turn, can put your merchant account in jeopardy.

Here’s an example.  A friend has been looking for “Mr. Right” and joined a well-known online dating site.  She signed up for a 3 month period, thinking that would give her enough time to try out the service.   She did not see any recurring billing notices at the time she signed up.

After the 3 months elapsed, she was shocked when automatically rebilled for another 3 months.  The company never sent her a notification that she would be rebilled; it simply “slammed” her account.

On the company’s website, it said that no refunds are issued for recurring billing.  There was no customer service number to call and no way for her to dispute the charge directly with the company.

Her only alternative was to call her credit card company and dispute the charge.  She was told that what commonly happens is that companies have an opt-out clause written in small print saying that if she did not cancel, her account would automatically be billed.  Her credit card company reversed the transaction and credited her account.

How does this affect the high risk merchant?

First, the company loses the revenue from the sale.  Second, the company incurs a chargeback fee.  Most importantly, the reversed transaction drives up the chargeback ratios for the company.  When a company has chargebacks in excess of 1%, the payment processing account is jeopardized.

Best practices for merchant account management include clearly disclosing terms of recurring billing transactions.  Make it easy for customers to cancel recurring billing.  In the long run, you’ll protect your ability to accept card payments, which are the primary source of cash flow to your company.