Why Too Many Chargebacks Could Get You Blacklisted

Avoiding Chargebacks!

As a business owner, you never look forward to a notification that a customer has filed for a chargeback against your business. Unfortunately, it does happen at some point and it can have an enormous impact on your business, especially if you don’t deal with it properly. Too many chargebacks could get you blacklisted, but there are several chargeback prevention tips you can follow to ensure you don’t lose your high-risk merchant account. 

Although there are no hard-and-fast rules for chargeback rates, the standard threshold is a mere 1%, which means that there is almost no room for mistakes. But if you have a high chargeback rate, you are risking your business, which could potentially be blacklisted among merchant providers.

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What are the most common reasons for chargebacks?

A chargeback dispute could be filed by a customer for several reasons, the most common of which include:

• Double-billing or wrong charges. This is usually caused by a clerical error in which the customer was either billed twice for a single purchase or charged with the wrong amount.

 

• Unauthorized purchases. This means that the cardholder didn’t authorize the purchase that was charged to their credit card or doesn’t recognize the charge because the business name is different from the shop or website where the purchase was made.

 

• Canceled subscription. Recurring payments can lead to chargebacks for subscription-based businesses. Sometimes a customer is billed for a subscription that they chose to discontinue, so they request a chargeback from their issuing bank.

 

• Failed expectations. This happens when the customer received a product that was either damaged, low quality, or just didn’t meet their expectations or the promises of the business on the website.

 

• Friendly fraud. When a customer files for a chargeback despite the purchase being valid, it’s sometimes known as friendly fraud. Some scammers buy products and either claim that they didn’t receive them or they were able to use the product but it didn’t meet their expectations. Unfortunately, this occurs with many businesses.

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What happens when you have too many chargebacks?

So the question is, how high is too high? The acceptable threshold is just one chargeback for every 100 successful orders. But remember that the 1% is already the maximum. So if possible, you still need to aim for a 0% chargeback rate. Some banks will also look at factors such as the company’s chargeback history as well as the volume of transactions handled in a month.

But when you have too many chargebacks, your issuing bank will start to notice and it could put your business at risk of being blacklisted, which means that you’ll have a harder time finding a reliable payment processing company, accepting online payments, or you may never be able to accept this payment method at all. 

Worse, your bank could pass on the high chargeback fees and instead place your business in the Terminated Merchant File for a minimum of five years. This limits the payment processing methods available and your funds may potentially be put on hold through a merchant account reserve.

As too many chargebacks could get you blacklisted, you need to re-evaluate your processes and find loopholes such as too many clerical errors or wrongful advertising that’s causing you to lose money and customers.

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Avoiding Chargebacks

If your business is considered high-risk by banks or ISOs, then your primary goal will be to avoid chargebacks. These are a few ways to maintain a low chargeback rate: 

• Offer refunds or even partial refunds for certain items
• Provide an easy way for customers to cancel or change services 
• Make your refund, exchange, cancellation, and other policies as clear and visible as possible to customers
• Remind customers of upcoming payments, particularly for subscription-based businesses 

Since too many chargebacks can get you blacklisted, the experts at First Card Payments also recommend creating a backup credit card processing account just in case your primary account is suddenly suspended. This will allow you to quickly switch over with only minimal interruption to business. You can spend the extra time working with your primary processor to ensure that you can get back to business. 

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Struggling with chargebacks? Speak with a professional merchant account processor at First Card Payments to develop a chargeback mitigation strategy that will work for your business: (877) 441-6801.

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