If you want to make a small business owner cringe, just mention chargebacks. The process in which a customer asks the bank to reverse charges on a purchase they made is meant to protect consumers from fraudulent charges to their account, which is great, in theory. In reality, chargebacks have become a way for some consumers to scam businesses and a costly headache for businesses.
Here are five ways chargebacks could be costing your business:
Flat out fraud
Nearly 86 percent of all chargebacks are fraudulent, so it’s no wonder they’re an ongoing source of frustration for many business owners. The good news is that if you’re using EMV technology to process payments, your business is now responsible for fewer fraudulent charges, although the costs still can add up.
Not only do businesses lose money because they have to refund the cost of the item, in many cases, but they'll also never get their product back either. Studies have found that every $100 of fraud costs business owners $308.
Chargebacks are a huge time suck as the burden of proof is on the business, not the consumer. If they’re bogus, a merchant has to take the time to contest them to get that money back. But even if customer chargebacks are not intentionally fraudulent, they still take employee time to investigate, gather documents for proof and attempt to rectify the situation — time that could be devoted to building your business.
In addition to the money you may have to refund, you can also be hit by the merchant bank with a chargeback fee that can be as much as $100 per transaction. Fees may increase the more chargebacks you have.
If your account has too many chargebacks, in some cases it can be labeled as fraudulent by credit card companies, which could be damaging to your brand. In the worst cases, you could have your online account terminated and be unable to accept online payments.
So it’s up to you to do everything possible to prevent chargebacks from happening because as you can see, the cost if you don’t can be huge.