What is a Chargeback?
December 23, 2008
When you order something online, you’re charged to your cerdt card account for the transaction – everything is fine. However, when you get your monthly statement and there’s a charge that you didn’t approve, you want to get your money back. You call your credit card company or the company that charged you and you get a refund for the charges – this is called a charge back. The money is being ‘charged back’ to the credit card account.
There are a number of reasons why a chargeback may be issued:
- There was an error in the transaction
- The customer accidentally used an expired card
- Someone is disputing the charge
- Fraudulent use of a credit card
While this process works out well for the customer, it doesn’t always make a business owner feel as good. Each time a charge is given back to a customer, they are losing money from the sale – even if it wasn’t a legitimate sale. In addition to losing that money, many merchant account providers can also charge a fee to handle that chargeback process. If there are a lot of chargebacks, the fees can begin to be excessive.
This is why many merchant account providers will have a preset limit that businesses need to keep in their merchant accounts to cover chargebacks. When there isn’t enough money in the merchant account after you have taken some out, the merchant account will have to use their own funds to refund the customer – and they would rather not do this.
There are even a few merchant account providers that will be hesitant to accept certain businesses as clients because of their probability for chargebacks. In the case of businesses that offer services that can be paid for with credit cards, there is a higher likelihood of these businesses receiving calls about charges not being authorized – so, more chargebacks. But in the case of businesses that provide goods, this is less likely.
Merchant account providers may also increase the levels of fees that businesses will have to pay when they are going to have a high likelihood of chargebacks. These fees will help support the extra processing and extra time that will be given to managing the account’s activities. They will also want to be paid for the time that they will spend handling any disputed claims that take more than just a phone call to resolve.
While this doesn’t mean that businesses shouldn’t offer chargebacks, it does mean that businesses should be aware of how their customers are giving their information. If you create a system in which you have a superior product or good, you will have fewer returns, of course, but if you also have a secure website in which customer information is not subject to hackers and other problems, you will also reduce the possibility of chargebacks.
Chargebacks are just a fact of life for online businesses, however, they can be controlled with some close monitoring of your website’s procedures as well as who can see your customers’ personal information.
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