Merchant Account Chargebacks

Why Merchant Account Chargebacks are a Big Deal

Merchant account chargebacks used to be no big deal. This has all changed when in April 2015 Visa set forth a limit for chargebacks on a business’s merchant account. This means that chargebacks can only be allowed to make up one percent of sales and/or 100 chargebacks per month. This applies to both local and international transactions. Merchants nearing the 0.75 percent level or 75 merchant account chargebacks per month will receive an official warning from Visa. Payment Processors then must automatically enroll these merchants in a fraud monitoring program. If the chargebacks continue, the business will lose its merchant account.

What to do About Merchant Account Chargebacks

Communicate Refund Policies

This move is forcing merchants to reevaluate their chargeback reduction strategies or lack thereof, compelling merchants to take chargebacks more seriously. It is too easy for a customer to file a chargeback. Merchants need to figure out how to better communicate with their customers. It is important for merchants to teach their customers their refund or exchange policies prior to the sale. If customers don’t understand your billing procedures and policies upfront, they’ll be confused later and feel misled, resulting in more customer disputes.

Update Your Billing Descriptor

Another possible way of reducing merchant account chargebacks is by updating the billing descriptor on your merchant account. Some chargebacks occur because cardholders don’t recognize the company name on their credit card statement and so they dispute the charge. Make sure your merchant services provider has the correct business name listed on the billing descriptor of your merchant account. If you have an e-commerce website, you may need to change the billing descriptor to the URL of your website, if that is what cardholders recognize as your brand. They may not know the actual legal name of your corporation or LLC.

Ensure Product Delivery

Also, make sure if you ship products, to always require a signature upon delivery. This way, customers can’t claim they never received the package because you’ll have proof that they signed for it. Merchants should also be following proper fraud prevention techniques such as Address Verification Service (AVS), Digital Signature Capture, and only shipping products to a verified cardholder billing address. (Crooks don’t ever use stolen credit cards and ship products to the true cardholder’s billing address because they don’t live there. They always designate a separate shipping address, such as an abandoned building, where they can pick up the product after delivery.)

Respond to Cardholder Disputes

Another way of reducing merchant account chargebacks on your merchant account is by responding to all retrieval requests. The processor will mail you paperwork if you have a transaction dispute with a cardholder. You’ll have a finite amount of time to respond to your processor’s chargeback department with:

1. The cardholder’s signature authorizing the transaction
2. An invoice detailing the products/services sold
3. Proof of product delivery or services rendered
4. Any other documentation or proof, such as detailed records of communication with the customer
5. An overview of your side of the story

Merchants who don’t respond or who respond after the deadline will automatically lose the dispute, and the funds will be given back to the cardholder.

The Solution to Merchant Account Chargebacks

Many merchants are now scrambling for a plan. Previously, most businesses felt that managing merchant account chargebacks was not worth it. However, in light of the new ruling, many businesses are taking a second look. Another way to handle this is to make sure your terminal accepts the EMV chip cards, reducing your business’s liability. PayJunction’s Smart EMV Terminal is EMV compliant and able to process all smart chip credit cards, reducing possible merchant account chargebacks due to card-present fraud. Learn more about the importance of cardholder signatures.

Be Prepared!

Two of the big industries that will most likely be affected are travel-related businesses and industries with high-ticket items. People make travel plans months in advance and will often request a chargeback when their plans go astray, and people who buy big-ticket items will sometimes suffer from buyer’s remorse after the fact. The tides are shifting, and it is important that all merchants prepare!