We talked about chargebacks previously, but there’s a subject that appeared lately known as chargeback protection services.
We’ve seen a lot of these businesses pop up, and they claim to offer protection for merchants against chargebacks. The problem with these sites is they are perpetuating a lot of overhype and fear around chargebacks. In addition, the services they offer do not seem to really give extra protection for merchants and chargebacks.
Fraud is by nature awful, and it can cripple a merchant. But not all chargebacks come from fraud. Many come from customer service issues, unclear guarantees/warranties. Having a clear branding so the charge on the customer's credit card isn’t a mystery on their statement.
The biggest thing is delivering on what you sold, and setting proper expectations on a service. So, for us in the payment industry, we ask ourselves, are chargeback prevention services as beneficial for small business owners as they claim to be? And do they really prevent more chargebacks?
Chargeback services, by and large, only really give you advice on how to best handle a chargeback. Unless it acts as insurance to reimburse you for funds lost due to fraud or chargebacks, it’s not worth it.
Most of the services we’ve seen online advertised as do some sort of monitoring on your merchant account to see if funds are not deposited.
They claim something like this:
“We alert the merchant each time a transaction dispute is filed, allowing the merchant to refund the cardholder rather than sustain a chargeback.”
The problem is if a chargeback has been filed the money has already been pulled from your merchant account. It’s pointless to pay for a service that isn’t preventing your business from losing profit.
This service only acts as an alarm, instead of preventing the chargeback all together. You’ll still have to work with your credit card processor to supply the correct documentation and dispute the chargeback.
The ways to mainly prevent chargebacks are to issue refunds as quickly as possible and keep records of those refunds for at least 6 months.
To be frank, you should not be experiencing chargebacks frequently enough to need chargeback monitoring. If you are continually receiving chargebacks, either you need to take better steps to protect yourself against fraud. According to Visa and MasterCard, the threshold of chargebacks to merchants is less than 0.50% of your transactions.
To summarize, it’s far better to skip out on these services. Follow these guidelines and work with your payment processor to prevent chargebacks.
Read about the success these merchants had with their credit card processing.
