No matter how much you try to stop them, they always seem to be there – chargebacks initiated by frustrated or confused customers that can not only cost you a great deal of money, but also a great deal of worry. For example, have you ever found yourself thinking:
How many chargebacks can I get before I’m flagged?
If I’m flagged, will I lose my merchant account?
Am I completely subject to my customers’ whims?
Fortunately, there are chargeback monitoring program out there and credit card companies such as Visa and MasterCard have been very forthcoming with the guidelines for their merchant service providers. If you’re worried about your average chargeback rates and how it might affect your ability to do business, here are some things you need to know.
- Chargebacks usually do not affect your good standing if the chargeback-to-transaction ratio is less than 1%
While each credit card sets its own guidelines, if you average 1 chargeback or less for every 100 transactions, there is little to be concerned about. Even if your chargeback-to-transaction ratio (CTR) is routinely above this, you may be all right so long as you’re a new business with a low monthly transaction volume, since MasterCard requires at least 50 chargebacks per month before placing you in its Excessive Chargeback Program, and Visa requires 100 chargebacks.
These thresholds are good news for startups, who would otherwise be penalized for all chargebacks while they built up their customer base and could lose their merchant services before they ever got off the ground. However, if you’re an established business averaging any number of chargebacks over 50-100 per month and a CTR greater than 1%, you may need to stop and ask yourself why – before your merchant service provider does.
- Most merchant service providers will not dump you immediately
Being placed in MasterCard’s Excessive Chargeback Program (ECP) or Visa’s activity monitoring list does not automatically exclude you from receiving services. These companies usually grant you a period of time to fix the problem and bring your CTR back to an acceptable level. It is only after repeatedly or consistently exceeding the acceptable CTR level that your merchant account may be terminated.
- You can contest chargebacks
Chargebacks do not have to be one-sided transactions. If you feel the dispute is unwarranted, you can contest it during the period of time set by the acquiring bank for this purpose. But handle these matters promptly – once the window of time has closed, it will not open again.
- There is a reason – and a solution – for excessive chargebacks
When you receive a chargeback, you also receive a reason code identifying why the customer disputed the charge. Whenever you receive a chargeback, check this code to see what went wrong. If you begin noticing a recurring reason or reasons, don’t brush it off – take action!
For example, if you routinely get a reason code 30 from Visa or 4859 from MasterCard for services not rendered or received, you may need to start shipping with delivery confirmation or charging the card after the item has already shipped (both good practices for any business). If you frequently see Visa code 73 or MasterCard 4837 for transaction not recognized/no cardholder authorization, you may need to re-examine your credit card descriptor to make sure you’re clearly identifying yourself in a way your customers can recognize on their statements or double-check the shopping cart to make sure it’s requesting the CVV to protect against fraud.
Chargebacks are never ideal, but they are a part of doing business. However, with smart practices both on and off your website as well as a solid understanding of why they occur and how they affect your high risk merchant services, you don’t have to be a passive victim to them. They can even become the catalyst that propels your business to the next level with the right chargeback management program.