Four Important Facts About Credit Card Chargebacks

Credit card processingCredit card chargebacks do not frequently occur, but they provide an important measure of consumer protection for consumers who use credit cards. However, chargebacks can also be a significant headache for merchants who accept credit card payments. Due to the importance of chargebacks to both consumers and businesses, it is important for merchants to understand the basics about how credit card chargebacks work.

The Chargeback Process Protects Consumers
A chargeback refers to the reversal of a payment to a merchant due to a consumer’s complaint. For example, a consumer who orders a product online, but does not receive it, can request that the credit card company cancel the transaction. The credit card company will contact the merchant for information and consider the request. If approved, the credit card company will pull the money from the merchant’s account and credit that amount to the consumer’s account.

Chargebacks Result in Fees to the Merchant
Chargebacks are not only a problem for merchants due to the loss of payment, but also due to the charges that credit card companies levy for chargeback investigations. A credit card company will request information on the transaction from the merchant and will charge the merchant a fee. This fee ranges from about $5 to $20 and is required even if the customer’s request is denied. If the chargeback is approved, the merchant will have to pay an additional charge of up to $40 per transaction or even more.

Good Service Prevents Chargebacks
One of the most important things that a merchant can do to reduce chargebacks is to provide good customer service. From providing useful and clear information before a sale, to assuring prompt delivery of goods and services, a merchant who keeps his or her customer happy will have a low rate of chargebacks. Following up with customers after a purchase can also help to prevent chargebacks as well help a business to develop a strong customer following.

Fighting Fraud Prevents Chargebacks
Many legitimate chargebacks are due to fraud. This gives merchants just one more reason to fight against fraudulent transactions. Requiring customers to use various verification methods reduces the risk of fraudulent charges and the resulting chargebacks. Some of these methods include requiring customers to use the three digit CVV code on the back of the card or the credit card company provided security code as well as shipping orders with delivery confirmation.

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