How Do I Manage Chargebacks For A High-risk Merchant Account?

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Chargebacks are the worst, especially if you own a high-risk business and deal with them on a regular basis. Intentional chargebacks are becoming more common as e-commerce grows, and not all businesses can handle the challenge. However, there are some methods and techniques for preventing and managing chargebacks that we've decided to share in this blog post.
But first, let's learn more about high-risk businesses and chargebacks so we know what we're up against.

What is a high-risk merchant account?
The name says it all: it's a type of bank account that allows high-risk businesses to accept credit cards through online payment gateway and other forms of payment for their goods and services. High-risk merchant accounts typically have higher service fees than low-risk merchant accounts, as high-risk businesses are more likely to experience chargebacks and fraudulent transactions.

As you can see, having a high-risk business is the most important factor in requiring a high-risk merchant account. But what factors lead to a company being labelled as high-risk?

Obviously, chargebacks. The more you have, ...
... the more likely you are to become a high-risk business. To stay in a low-risk lane, chargebacks must account for less than 1% of total sales, or one chargeback per 100 satisfied customers. If you get more than that, your company will most likely be classified as high-risk.

You work in a specific industry. Because they deal with a lot of fraudulent transactions and chargebacks, some industries are automatically considered high-risk. Gambling, online gaming, adult and dating, tourism, telemarketing, healthcare services, and subscription-based businesses are among them.

A base of operations. Some countries, like industries, are more prone to chargebacks than others. Some banks and PSPs publish a list of high-risk countries on their websites.

What is a chargeback?
After a transaction with a merchant, a customer can initiate a payment reversal through their car-issuing bank. Though some merchants may consider this process to be unjust, chargebacks are an important part of a buyer's financial security, and the knowledge that they can always get their money back encourages them to buy in the first place.

A different procedure known as refund occurs when a cardholder contacts a merchant directly, requests that their money be returned, and provides a valid reason for doing so. If the merchant agrees, the money will be returned to the customer without the involvement of a bank.

What happens, however, if a buyer chooses to file a chargeback? Let's walk through the entire procedure:

To begin, a cardholder decides to dispute a transaction after making a purchase. To do so, a customer must contact the bank that issued their card.

The buyer's bank contacts the merchant's bank or the best online payment gateway service provider and informs them of the situation. The latter can provide any proof that the transaction was legal, such as receipts, invoices, or delivery documents.

A card-issuing bank must decide what to do next after receiving evidence of a successful purchase (if any). If the evidence is insufficient, the money will be returned to the customer. If the transaction was legit, the card-issuing bank notifies the buyer and they can either agree to pay for the purchase or dispute it once again, launching the arbitration process.
The chargeback will be decided by the card issuing companies, such as Visa, Mastercard, and others, who will review and consider the evidence provided by both parties. Even if the merchant loses the case, they can still go to court to seek justice.

Why do chargebacks happen?
To avoid and manage chargebacks, you must first comprehend why a customer is requesting one.
The product does not match the description. It's sometimes unavoidable: either a product is of poor quality, was damaged during shipping, or a customer didn't pay attention and ordered something they didn't want.
The delivery fails to arrive. A customer's purchase could be lost, or the delivery process could take too long, causing the buyer to lose patience.
A failed refund.
A dissatisfied customer can contact a merchant to settle the matter privately and without the use of banks. However, this does not imply that the parties will resolve the issue, and thus the buyer will seek a chargeback.
The forgotten subscription.
After a monthly subscription charge, a client may forget that they have subscribed for service and issue a chargeback.
Buyer’s remorse.
A customer may request a chargeback if they regret purchasing a product or service. People sometimes regret purchasing expensive items, so this type of chargeback can be devastating for a merchant.
Friendly fraud.
Unfortunately, the situation is not pleasant – it occurs when a customer files a chargeback on purpose in order to obtain both the product and their money. A customer will use one of the aforementioned reasons to appear honest while disputing a transaction to deceive banks.
Customers who do not intend to deceive merchants but request a chargeback anyway – either because they are unaware of the company's refund policies or because it is more convenient than figuring out the problem with the merchant – are classified as friendly fraudsters.
Regardless of whether a friendly fraud is intended or not, it is extremely common. All of these chargebacks, however, can be avoided if a merchant follows a set of guidelines and recommendations that we'll go over later.

How to prevent chargebacks
Making sure you follow the procedures and use all of the tools available to avoid chargebacks should be a merchant's top priority, especially if you own a high-risk business.
To begin, the merchant website should adhere to all security standards and utilise a 3D-secure protocol to verify a client's identity. A buyer must first fill in their card information, then enter a one-time password sent to their phone, a permanent 3Ds password, or use their fingerprint to complete the transaction. As a result, the chances of a fraudulent transaction are greatly reduced, as a thief will need the card owner's phone to complete the transaction.

Setting clear and fair refund policies is critical – show clients that you are always willing to refund money if the reason is valid. Make sure your refund policy is visible on your website.
Product/service descriptions should be thorough and include accurate product photos. Your customers should be certain that they have purchased exactly what is shown on the website.

Your customer service needs to be excellent. Use as many channels as possible to communicate with customers, be courteous, and don't ignore calls or e-mails. Contact customers not only when they request a refund, but also when they have questions or concerns about your product.
Even before a customer makes a purchase, an estimated delivery time should be established. Make your customers feel important by using online tracking and notifying them if the delivery is late. Also, make sure the delivery service you choose is reputable and has few negative reviews.
In the event of a chargeback, keep all receipts, invoices, and other documents that may be required to prove the purchase was made/received. It's also necessary to e-mail a receipt to a customer after they've completed a transaction.

Your billing statement, which will appear on a customer's credit card statement, should be clear and easy to understand.
If you offer subscription-based services, alert your customers a few days ahead of time about the upcoming monthly charge.
How to manage chargebacks
Unfortunately, no matter how many precautions you take, chargebacks cannot be completely avoided. If you're a high-risk merchant, managing payment disputes is critical to your company's long-term success.

So, what should you do if you get a chargeback:
Determine why a chargeback occurred. If the transaction was fraudulent, you must accept it and upgrade your security systems to ensure that it does not happen again. You can dispute the chargeback if there is another reason.

You already have what it takes to dispute and win a chargeback if you've been following our chargeback prevention advice. Show receipts and other documents if a customer claims they didn't buy your product. If a customer complains that a purchase does not match the description on the website, send them the product description and photos, for example.
If you suspect a friendly fraud, it's critical to file a dispute; the next time a fraudster demands a chargeback, they'll think twice.
Learn from your mistakes: Whether you win or lose the dispute, you'll need to consider all of the issues you've had with chargebacks.

Know more about SifiPay, please visit www.sifipay.com.