Chargebacks are becoming one of the biggest payment challenges for businesses of all sizes today. While some chargebacks are completely legitimate, it turns out that fraudsters have figured out a way to get more free merchandise using this refund technique. This becomes especially true when it turns out that credit card issuers, like banks, often rule for the cardholder (or fraudster posing as the card holder). Although any business can fall victim to this type of fraud, there are some businesses that have been identified as being more likely to be affected. These businesses are then labeled high risk by credit card processing companies and must contend with higher fees or the inability to even get a merchant account.
There are a number of factors that define the types of businesses that then fall into this high-risk category due to their chargeback volume. Typical factors are related to the industry you are in, the location or territories you serve, and the type of clientele you attract. For example, if you are an international merchant or do business with any countries outside the U.S., Canada, the European Union, Japan, Australia, Singapore, or South Korea and deal in multiple currencies, you have a higher risk for chargebacks.
There are numerous industries known to have high chargeback ratios. These include online gambling, adult products and services, pharmaceuticals, medical marijuana, dating services, airline tickets and tourism products and services, telemarketing, cryptocurrency or Forex trading, e-cigarettes and tobacco products, and timeshares.
Business Model Risk
Within these industries or business niches, having a subscription-based business for certain products or services or offering products and services that are aligned with high dollar transactions further that risk for chargebacks. Also at risk for chargebacks are marketplace businesses that define the new sharing economy model. Criminals are targeting mobile apps for chargeback opportunities, putting these businesses in the high-risk category.
Size and Experience Risk
Being a new business may also signal that you could be at risk for more chargebacks because you are not experienced and don’t know what to look for in terms of potential fraud or suspicious activity. Enterprise businesses tend to have more chargebacks because of the sheer volume of payments they process, while a small business doesn’t have the volume but suffers from limited bandwidth to effectively oversee the entire payment and chargeback management process.
Don’t Let Chargebacks Define Your Business
Just because you fit the profile for more chargebacks doesn’t mean it will happen, especially if you know what to look for and partner with a payment processing company that understands your business and can help you proactively minimize chargebacks.
Implementing a chargeback management program with the help of your processing partner has proven to reduce the risk of chargebacks and send criminals to more vulnerable businesses.
A best practices approach includes maintaining high levels of customer contact with quick responses to any customer concerns. This includes responding to and honoring any cancellation or refund requests promptly. Be sure to also display your refund and return policies clearly online, on the payment page, and in the email receipt you send.
Make good use of package tracking and don’t charge the card until the products have shipped. Stay informed about new ways criminals are trying to leverage chargebacks to their advantage so that you can identify their strategies and stop them.
Communication is also good to maintain with the banks or card issuers, including providing them with detailed records of each transaction with delivery confirmation. This proof helps to discredit the fraudster. Building a solid relationship with card issuers can help you join forces to fight fraud and win.
Know that the environment is forever changing in regards to fraud, so vigilance is of utmost importance. You will also need to be flexible to address the fact that there is no one-size-fits all solution. Because of the many changes in the financial sectors of business, it will remain an important reason to find a payment processing company that wants to work with you on fighting these chargebacks.