It’s sad, but true. When it comes to chargebacks, the credit card companies are most often on the cardholders side, not the merchants.
There is a certain segment of cardholders know how to work the chargeback system in their favor. Merchants can do everything correctly, follow all card association regulations and recommendations to the letter, and still get zinged big time for chargebacks. Business segments classified as high risk merchants are more prone to chargebacks than others.
The card companies monitor all merchant chargeback activity on a monthly basis and alerts merchant banks in writing when any of their merchants has excessive chargebacks. Chargebacks of 1% or higher are considered excessive.
The card companies consider the first notification of excessive chargebacks for a specific merchant a warning. The banks impose large fines to merchants who do not take action within an appropriate period of time o return chargeback rates to acceptable levels.
Working with a high risk payment gateway can help control chargebacks.
The length of time merchants are given to comply almost never exceeds 3 months. By the 3rd month card assess escalating fines to the banks beginning at $50 per chargeback. Additionally, The banks are accessed an initial $5,000 review fee plus spiraling additional fines. All fines are passed on to the merchant.
The bank can be audited by the card companies and may lose their acquiring status. With so much at risk, it’s no wonder that the banks will almost always terminate the merchant before they complete the 3rd month of monitoring.
Once merchants are terminated, it’s very difficult for them to get another merchant account. Any bank opening a new account for the merchant assumes the previous liability associated with that merchant.
The moral for this story is that merchants must do whatever it takes to keep chargebacks low. A good payment gateway can help.
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