Risk Management

What are Chargebacks?

What you need to know about Chargebacks is that they can occur when a customer contacts their credit card Issuing Bank to initiate a dispute and request a refund for a purchase they made on their credit card. The reasons why chargebacks arise can vary greatly but in general, they are mostly the result of a customer being dissatisfied with their purchase.

A chargeback is a reversal of a credit card transaction. Not because the product was returned or because the sale was never completed, but because there was some problem with the end result of that transaction and the customer requests a refund. Often and unfortunately, a chargeback means that the customer initiated a dispute and the merchant ended up providing a product or service for free. Common reasons for chargebacks on a purchase made with a credit card include:


  • Customer disputes
  • Fraud
  • Authorization issues
  • Processing errors
  • Failure to fulfill copy requests

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Merchants Hate Chargebacks

Merchants of course, hate chargebacks. When you shop for payment processing and a merchant account, pay special attention to the aquiring bank and payment processors chargeback rules. Even though you feel a good merchant acquirer and payment processor will take chargeback management seriously and provide chargeback protection for its customers, this is not always the case. Here are some other ways you can help initiate a dispute and have your customers ding you with a chargeback.


  • Take customer satisfaction seriously, and strive to meet or exceed customer expectations about what products or services you will provide, when you will charge their cards, and continuously work on preventing fraud within your own operation.
  • Be sure your staff is trained not to process transactions with declined authorizations or without customer signatures.
  • Never estimate charged amounts, and be sure the customer sees the final total (including tips and other add-ons) before the card is charged.
  • Be sure the transaction information on the sales receipt is legible.
  • Ship merchandise before processing and settling credit card transactions.
  • Be vigilant about voiding duplicate transactions added in error, and take steps to secure credit-card deposit information to avoid the possibility of employee fraud.
  • Disclose return and refund policies clearly before a sale, and be prompt about cancelling or refunding transactions when customers request it.

Payment Gateway

When a Merchant is Considered Higher Risk

If a merchant account repeatedly has too many chargebacks, is on the radar and considered a high risk by the acquiring bank and payment processor, this could end up being a death sentence for the merchant and essentially end their ability accept credit cards. If a merchant relationship indicates that the business has problems with their quality of products, delivery times, or customer service, no merchant processor will be interested in doing business with this merchant. All merchant should be responding promptly to all customer disputes and other factors that could cause chargebacks and be fully be aware that your acquiring bank and payment processor can cancel your account at any time if you hit or exceed their chargeback threshold.

If the chargeback threshold is over 1.0 - 2.0 percent, your bank may sever its relationship with you immediately. As you shop for credit card processing and a merchant account, take the chargeback threshold section seriously. If you don't, you can end up on a Terminated Merchant File List or TMF list and possibly never be able to accept credit cards again.

No merchant can expect to avoid chargebacks entirely but knowing your threshold can help you take the necessary steps to keep them under control. Always pay attention to whether your acquiring bank and payment processor has a chargeback management staff available to help you deal with customer disputes. This can be a very useful service that protects you as a merchant as well as the merchant service provider and payment processor.

Please contact one of our representatives to help educate you and how to minimize and prevent those unwanted disputes that could possibly lead to a Chargeback.

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