What Are Chargebacks?
A chargeback occurs when a customer disputes a transaction with their credit or debit card issuer, requesting a reversal of the payment. This process was originally designed as a consumer protection mechanism to address fraudulent or unauthorized transactions. However, chargebacks can also arise due to misunderstandings, merchant errors, or friendly fraud (when a legitimate customer disputes a charge they authorized).
Common Causes of Chargebacks
- Fraudulent Transactions: Unauthorized use of a card
- Customer Dissatisfaction: Issues with the product or service quality
- Billing Errors: Duplicate charges or incorrect amounts
- Friendly Fraud: Customers dispute valid transactions, either unintentionally or deliberately
How Chargebacks Can Harm a Merchant’s Processing Account
While chargebacks serve an important role in protecting consumers, they can have significant negative consequences for merchants such as:
- Financial Losses: Merchants lose both the transaction amount and any associated fees, including chargeback fees that range from $20 to $100 per incident. Additional costs may include lost inventory, shipping costs, and labor expenses.
- Increased Processing Costs: A high chargeback ratio (chargebacks as a percentage of total transactions) can lead to increased processing fees or the imposition of reserve requirements by the payment processor.
- Reputational Damage: Excessive chargebacks can damage a merchant’s reputation with processors, customers, and card networks, impacting trust and long-term growth.
- Account Termination: If a merchant’s chargeback ratio exceeds thresholds set by card networks (typically around 0.9%–1.0%), they may be classified as “high-risk.” Processors may terminate their account, making it difficult to obtain payment processing in the future.
Chargeback Alerts: A Proactive Solution
Chargeback Alerts is a powerful tool that allows merchants to proactively address disputes before they escalate into formal chargebacks. This system intercepts disputes in real-time, giving merchants the opportunity to resolve issues directly with the customer or refund the transaction, preventing it from becoming a chargeback.
How Chargeback Alerts Work
- Dispute Detection: When a dispute is initiated, Chargeback Alerts notify the merchant instantly, providing transaction details and the reason for the dispute.
- Resolution Opportunity: Merchants are given a window of time (typically 24–72 hours) to resolve the issue with the cardholder or process a refund.
- Chargeback Prevention: If the merchant resolves the dispute, it is canceled, and no chargeback is filed, protecting the merchant’s account and chargeback ratio.
Benefits of Chargeback Alerts
- Protects Against Excessive Chargebacks: By resolving disputes early, merchants can maintain a low chargeback ratio, avoiding penalties and preserving their processing account.
- Reduces Financial Losses: Preventing chargebacks minimizes fees and lost revenue while keeping inventory and resources intact.
- Improves Customer Satisfaction: Resolving disputes directly with customers demonstrates a commitment to service and fosters trust.
- Preserves Processing Relationships: Proactively managing disputes ensures compliance with card network thresholds, reducing the risk of account suspension or termination.
- Streamlines Dispute Management: With real-time alerts and actionable data, merchants can resolve issues efficiently and focus on growing their business.
Chargebacks are a critical challenge for merchants, with the potential to cause financial loss, reputational harm, and account disruptions. Implementing a proactive tool like Chargeback Alerts is an effective way to mitigate these risks. By addressing disputes early, merchants can protect their business, build customer trust, and ensure uninterrupted payment processing.
How to Activate Chargeback Alerts
- Login to Bankful
- Click on Chargeback Alerts on the menu to the left of your dashboard
- Click “Activate Chargeback Alerts”
- Click on “+ Add additional MID”
- Input your “Merchant ID Number” and your listed processing bank’s “Descriptor”
- This information needs to be precise in order for Chargeback Alerts to function properly
- Please reach out to your processing bank or agent to ensure this information is correct
- You may also contact us at support@bankful.com
How to Utilize Chargeback Alerts
- Once your request is approved, your Chargeback Alert page will look like this:
- You can engage the top toggle button to enable automatic refunds for your chargebacks
- If you incur any chargebacks, they will appear as in the example below
- By clicking on the + sign at the left of a chargeback you can expand the details
- You can also to choose to refund from here
11.20.2024