Credit card chargebacks are a costly reality for online merchants. A chargeback is a transaction disputed by the cardholder or issuer. There are many reasons for chargebacks, but the most common are returned merchandise, terminated services, disputes, errors, or fraud. If the credit card issuer considers the dispute valid, the merchant is required to refund the amount of the transaction plus a chargeback fee to the payment processor.
The REAL Cost of Chargebacks
If the chargeback dispute is considered valid, the merchant is required to refund the amount of the transaction plus a chargeback fee paid to the payment processor. The refund can occur without the merchant’s direct knowledge, even weeks later. There are additional costs associated with chargebacks a merchant needs to take into account:
Once you quantify these additional costs, you begin to understand the real impact on your revenue. In addition to the operational and financial losses from chargeback disputes, merchants who receive a high volume of chargeback claims could be considered “High Risk” and pay higher interchange fees.
Merchant Error - Charges made accidentally or incorrectly by the merchant. These may occur when a merchant duplicates charges, authorizes the wrong transaction amount or fails to issue a refund as promised.
True Fraud - Chargebacks that are the result of identity theft, hacking, or credit card theft. Someone other than the cardholder made the charge, and the customer had no knowledge that their card was being used.
Friendly Fraud - Occurs when a customer disputes a charge that they or a family member knowingly made. The charge might be disputed if they were unhappy with the product, or if the charge was more than expected.
How Elavon can help you prevent eCommerce Chargeback fraud
The exposure your company has to eCommerce fraud depends on your business policies, operational practices, fraud prevention and detection tools, security controls, and the type of products or services you provide. All members of your business should have an understanding of the risks associated with eCommerce transactions and should be knowledgeable about risk management. You also need a payments partner that invests in preventing fraud.
Elavon has experienced eCommerce professionals to help identify potential chargeback red flags and mitigate risk with best practices.
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