Merchant Processing 101: How Chargebacks Are Affecting Your Business

According to the 2016 U.S. Consumer Payment Study conducted by TSYS, credit cards took over the top spot as consumers’ preferred form of payment at 40%, followed closely by debit cards at 35%. In addition to improving consumer satisfaction, companies that accept credit and debit cards attract more customers, encourage higher spending per transaction, and eliminate the headaches associated with bounced checks. Some businesses are leery of such electronic transactions due to chargebacks.

What are chargebacks?

Chargebacks occur when a customer disputes a charge for many reasons including fraud, merchant error, or unauthorized purchases. While the process may vary from bank to bank, funds are typically withheld for three to six months while the dispute process occurs. The cardholder begins by contacting the bank to report a dispute. The bank then contacts the merchant requesting proof that purchase was legitimate including details of the specific transaction. Next, the bank investigates the transaction and determines if the customer is entitled to a chargeback, or credit, to their card. Once this process begins, the merchant and customer should cease communications and allow the bank to make their decision. If the chargeback occurs, the bank will complete the transaction, and the merchant will likely be charged a fee regardless of the outcome.

How can business owners prevent chargebacks?

While complete elimination of chargebacks is unrealistic, merchants can put systems in place to protect themselves from excessive chargebacks and the associated fees. By establishing a proper protocol with a secure processor and merchant support, a significant reduction in fraudulent purchases can occur. Training protocols are also necessary, as well-trained employees should be able to recognize the signs to look for to prevent fraudulent charges. By developing relationships and strong customer service practices, customers feel welcome to solve issues with the merchant directly rather than through the bank, thereby reducing chargebacks. The benefits a merchant receives from accepting credit and debit cards outweigh the risks of chargebacks if merchant partner with a reliable processing company.

Dynamic Merchant Solutions offers a full spectrum of merchant services to help our clients build a custom solution for all types of businesses. To learn more about our Chargeback Protection and Complete Fraud Protection, please contact us today for a free quote.

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