How to Protect Your Online Business from Chargebacks

By Blair Thomas 8/31

For many merchants, the internet presents a myriad of opportunities. An online enterprise is not only easy to set up, but it also enjoys a much broader reach of potential customers than the traditional brick-and-mortar layout. That said, the e-commerce scene is riddled with unique risks, through which a business owner must navigate to achieve success. Among those hurdles are chargebacks, which adversely affect cash flow and overall business growth.

If you’re new in the online market, preventing chargebacks can feel like an overwhelming undertaking. Nevertheless, the situation is not entirely hopeless. The first step is to understand the problem, after which you can determine the most viable ways of preventing it, or at least fighting it when it happens.

What is a chargeback?

Chargebacks were first designed to protect customers against fraud while shopping with their credit or debit cards. When a buyer files a chargeback, money spent to facilitate the transaction is returned to their account until the seller can prove that the sale was valid.

If the outcome of the case favors the customer, the merchant loses those funds and is left with hefty chargeback fees to pay. More often than not, the goods or services rendered in the transaction are also not recovered.

Cardholders are motivated to file chargebacks by several factors, ranging from scheduling and shipping errors to identity theft and cybercrime. Whichever the reason, however, it’s imperative that a business owner address the issue as efficiently as possible.

Chargebacks can cause damage fast

Although some chargebacks stem from legitimate causes, research has shown that most are instigated by fraudulent activity, either from untrustworthy customers or criminals.

Chargeback fraud can quickly escalate once fraudsters make repeat purchases with stolen credit card information and then shares their findings with fellow criminals. While you may be able to survive occasional chargebacks from amateur fraudsters, attacks by organized criminals can bring you to your knees.

The MATCH list

With a high number of chargebacks comes the risk of suddenly losing payment processing services. Even worse is, when processors close a merchant account due to excessive chargebacks, they typically report the business to the MATCH list.

In essence, MATCH is a blacklist of merchants whose previous processing accounts were closed because of issues like criminal dealings or chargebacks. A retailer on the MATCH list typically finds it hard to acquire financial services, and will often have to contend with higher rates from high-risk processors.

Guarding your online business against chargebacks

Chargebacks will almost always result from unsatisfied customers or malicious orders. As a first preventive measure, therefore, remain as open and as competent as possible to your shoppers. State your product descriptions accurately, and adhere to all the conditions as agreed upon with your customers. Also, follow up and find out if the purchased goods or services were to the buyer’s liking, and if not, try to solve the problem yourself so that you don’t give them a reason to file a chargeback.

To keep payment fraud at bay, involve processing company and inquire about any effective, legally-compliant policies they may have. In addition to chargeback protection, a reliable merchant account provider can also help you to implement modern techniques that streamline and optimize the way your business operates financially.

Although new technology is helping merchants to combat chargebacks, the opposite is also true. For customers, disputing a sale is now easier than ever before, and cyber criminals have more than enough tools to exploit. Therefore, knowing what chargebacks entail and using that information to improve your operations today can deliver you from crippling losses tomorrow.