Unauthorized credit or debit card transactions, use of stolen payment methods and “friendly fraud” are all on the rise. What’s worse, these chargeback risks are making a significant dent in the bottom lines of businesses around the globe. In addition to losing sales and having to cover merchandise replacement costs, merchants and service providers must absorb the expense of those fees and interest that banks levy as part of the chargeback process.

Those charges quickly add up. In fact, according to a 2017 study conducted by LexisNexis Risk Solutions, every dollar of fraud costs organizations roughly $2.50. Yet many companies do little to curtail these expenses.

Why? Many business owners — particularly those operating in high-risk industries — accept chargebacks as a cost of doing business. Moreover, investigating and challenging chargeback claims is time-consuming and costly. Finally, many businesses seek to maintain positive customer relations by taking the position that “the customer is always right” — even when the customer is clearly wrong.

Here at TN Merchant Services, we don’t accept that status quo. Instead, we offer chargeback protection services that incorporate a proactive, preventive approach and can minimize chargeback risks.

The Fair Credit Billing Act provides consumers with protection against fraudulent credit card use and dishonest merchants by requiring that credit card issuers reverse disputed charges. Unless the merchant successfully proves that a disputed charge is valid, the credit card issuer will seek to recoup funds and associated chargeback costs from the merchant.

Chargebacks cost merchants billions of dollars each year, and the number of fraudulent chargeback requests is increasing annually. Although credit card issuers often urge consumers to attempt settling disputes directly with merchants, many first go directly to their credit card company to request that charges be reversed. This practice negatively impacts a merchant’s chargeback ratio and consequently raises their costs (fees plus interest).

Buyer’s Error. One of the most common reasons consumers dispute a charge is that they simply forgot about a purchase they made or do not recognize the merchant’s name on their credit card statement. Issuing a digital receipt is one way to prevent this from occurring. In other instances, the buyer may have changed their mind about the purchase, does not want to take the time to ask the merchant for a refund, or wishes to avoid paying a restocking fee.

Technical and Clerical Errors. Technical errors that are not identified at point of sale (POS) — including insufficient funds, credit limit issues and charges made to expired accounts — make up a small percentage of chargebacks. Clerical errors may also result in duplicate or inaccurate charges. Generally, these errors originate at the POS and are often the result of businesses relying upon outdated POS systems. Updating to a new, preferably EVM (smart card)-compliant POS system will prevent most of these types of chargebacks.

Friendly Fraud. Consumers may dispute charges if a business fails to deliver goods or services as promised. From a buyer’s point of view, both damaged goods and goods that are perceived to be of lesser quality are just cause for dispute. However well-intentioned, this particular consumer protection has given rise to incidents of friendly fraud. Merchants or service providers may have delivered goods as promised, yet dishonest buyers may dispute charges to avoid paying. As online shopping and credit card sales increase, the cost of this fraud to business is rising, but it can be mitigated. Close monitoring of credit card activity can identify patterns of fraud.

Genuine Product Quality Issues. Merchants who are honest about the quality of their products and make their terms and conditions fully accessible are less likely to experience disputes over payment. Online sellers may wish to require buyers to check a box indicating they have read company policies before completing a transaction.

Businesses classified as high-risk by credit card processors are subject to higher fees and greater restrictions. Certain products, such as computer software, online dating services and e-cigarettes, are categorized as high-risk.

Businesses that deal in these products tend to have a high sales-to-chargeback ratio. That means they must take on the added expenses of a high-risk merchant account. Worse, merchants who experience a high volume of chargebacks may have their credit card processing agreements terminated, shutting down their ability to accept payments and effectively putting them out of business.

Merchants can fight back, but resolving payment disputes is both labor-intensive and complicated. Businesses must navigate multiple payment networks, each with their own set of rules and policies. A more practical and efficient way of cutting costs is to reduce chargeback risks by adopting preventive measures.

 At TN Merchant Services, we offer payment processing services for businesses of all sizes, from mom-and-pop neighborhood shops to large corporations, domestic as well as international. We specialize in helping those in industries subject to high chargeback risks, reducing their processing costs by daily monitoring accounts, implementing risk and reversal management programs, and activating other productivity tools. Moreover, our fair fee structure has been designed to help you maintain a competitive edge in the marketplace.