Some businesses are letting at least half of all chargeback cases go unanswered, which is causing significant financial losses.
According to Chargebacks911, a Tampa Bay, Fla.-based dispute mitigation company, online retailers are drawing a $279 loss for every $100 of fraud loss, partially attributed to chargebacks and their associated costs, the firm said citing data from LexisNexis and Yahoo.
A chargeback occurs when funds are returned to a consumer that is initiated by the issuing financial institution of the instrument used by that consumer to settle a debt. It is typically a reversal of a prior outbound transfer of funds from a consumer’s bank or credit union account, line of credit or credit card.
Chargebacks911 said failing to respond to chargebacks not only diminishes merchant profits, but can also fuel more chargebacks, causing a loss for merchants in several ways, including:
- The merchandise already shipped – it is highly unlikely that the buyer will return the item(s).
- Chargeback fees and penalties which will be assessed by the credit card processor for every transaction.
- Multiple chargebacks (more than 1-2% of total transactions) could lead to a penalty of up to $10,000.
- A loss of reputation.
- Revoked ability to process credit or debit cards.
Chargebacks911 co-founder Monica Eaton-Cardone said retailers can decrease their chargeback rate by identifying suspicious activity such as rushed or random orders, shipping addresses that differ from the billing address, or customers who seem reluctant to give personal information, such as ZIP code or street name.
Retailers can also offer a vehicle to resolve consumer disputes before they become chargebacks. In addition, businesses can educate customers about their product value – this can potentially give customers additional assurance and reminds them of the reason they initially made their purchase, Chargebacks911 said.