How Many Chargebacks Lead to Account Suspension?

This article was first published on February 16, 2020, and updated on December, 2022. 

Almost all businesses these days accept and transact payment through cards. The cashless method of payment is convenient for both the merchant and the customer as the risk of theft is reduced due to the limited availability of cash on hand.

Unfortunately, with progress come with a price – card payments put merchants at risk due to chargebacks.

Chargebacks are common issues in the business world due to technical error, human fault, or fraud.  Charges dispute can hurt the merchant’s profit due to losses on sale, investment on the item/s or services, and chargeback fees. Not only that, a certain percentage of chargebacks can lead to account suspension or account termination.

Because of the time and cost involved in chargebacks process, card associations impose a certain percentage of reasonable chargebacks for every merchant.

A chargeback higher than 1% on any form of payment will put the merchant on the card associations’ watch list. Besides, if a merchant has more than 1% chargebacks for transactions on a specific card, then another penalty may be incurred. Moreover, higher processing fee on all orders will be collected from the merchant (for chargebacks higher than 1%).

Another awful truth is that if a merchant fails to lower their chargeback rate within a given time frame, the merchant’s account may be terminated by the acquiring bank and may not be able to process payments within that certain card association.

To prevent merchant account suspension or reduce the risk of high rate chargebacks, always avoid common factors and mistakes by keeping in mind these best practices:

• Foremost, be clear with your terms and conditions. Lay all your ground rules by using simplified terminologies. Establishing concise business policies and plans reduce disputes. For eCommerce merchants, provide accurate product descriptions and clear return policies to avoid displeased customers or dissatisfied purchases.
• Always get everything in writing.
• Avoid manually entering card details. You put your business at risk for authorization chargeback error and this scenario cannot be contested. Confirm the card’s expiry date.
• Get the customer’s signature for every transaction (for old magstripe-only cards)
• Provide complete business information: address, contact number, website, and business page on social media accounts. Doing so corrects any transaction error on time, thus preventing chargebacks.
• Always keep a record of every transaction like receipts and proofs of transactions.
• Always follow credit/debit card protocols. Do not swipe the card twice if the first attempt of the transaction is denied. Also, never forget to verify and collect the card’s security code (for card-not-present transactions; for online business or purchase).

Always act on every chargeback as quickly as possible. Remember that a delayed action from your end can majorly affect your business. Keep an open line of communication with your customers to resolve issues before the customer devolve to filing a chargeback.

Any misunderstanding can be fixed promptly. While occasional chargeback cannot be avoided, at least this can be lessened, therefore saving merchants a lot of money, time, and the hassle of going through the dispute process.

Mitch Fardell( Merchant Account Specialist )

Mitchell Fardell is a highly experienced payment processor who has worked for First Card Payments since 2019. In that time, he has worked on large accounts, small accounts, and everything in between.