Posted by admin on Nov 13, 2012

 

high risk merchant, high risk merchants, chargebacks, high risk accounts, high risk processing, high risk merchant accounts

High Risk Merchants & Chargebacks

Let’s face it.  When it comes to chargebacks the odds are stacked against high risk merchants.

The reason certain businesses are classified as high risk is that the industry type carries a greater statistical likelihood that chargebacks will occurs.  Yet, even for companies in standard risk categories, chargebacks are an issue.

Chargebacks for outright fraudulent transactions are rare compared to those chargebacks which occur due to so called “friendly fraud”.  Friendly fraud is instigated by buyers who know how to play the chargeback game.

When a charge appears on the credit card statement, the buyer notifies their card-issuing bank and says the transaction was not authorized, the product was not received, was not what was ordered, claims the merchant was not responsive or gives some other reason why the transaction was not valid.  Many buyers know how to play the chargeback game well.

The issuing banks, for the most part, will side with the buyer and will start the procedure to initiate a chargeback.  It’s at this point that merchants are most vulnerable.

How Processors' Chargeback Systems Put You at Risk

Some of the largest payment processors in the country have the most pitiful chargeback systems in place.  Old systems that are not designed to keep up with the technology needed to run a successful ecommerce business.

Chargeback notifications are sometimes put in the mail, and are received by the merchants after the timeframe has passed to dispute the chargebacks.  Other times, the chargeback notification is sent by fax.

Sometimes you don’t even know that a chargeback has occurred.  You simply sees that money has been deducted from your business bank account.  The label on the debit transaction may not even refer to a chargeback.  All you know is the deduction was taken.  Leaving you to guess what the money was taken out for.

Some processors claim to have online chargeback management systems.  But, these can be a nightmare to try to figure out.  And reconciling the information in the reports with internal systems is difficult at best, impossible at worse.  There is no way to download data and reports in easily useable formats.

Depending upon your payment processor to give you the information you need to control your chargebacks is a mistake.  And puts your high risk merchant account at jeopardy due to failures to chargebacks.

Early Alert System Helps Control Chargebacks

There is a better way.  One of the easiest and fastest ways to control chargebacks is to implement an early alert chargeback system.

When a buyer calls an issuing bank to dispute a charge, you are notified.  You can refund the transaction automatically.  This prevents the dispute from becoming a chargeback.  Depending upon your industry, the early warning system can reduce chargebacks between 15% & 40%.

For chargebacks that do occur, consider outsourcing chargeback disputes to a third party that specialize in managing this function.  It can be more cost-effective to outsource to a specialist that knows how and when to fight chargebacks than it is to train and manage an internal team.

Conclusion

Keeping chargebacks low is vital to protect your high risk merchant accounts. If your chargebacks exceed the ratios set by the card brands, you can lose your ability to accept payments.

Implementing an early warning system is a prudent strategy to keep chargebacks under control. 

Are you a high risk merchant interested in lowering chargebacks?

Contact info@paynetsecure today.