Protecting Your Merchant Account from Chargebacks

A chargeback is the reversal of a charge on someones credit or debit card. In other words, the card’s issuing bank takes the funds that were given to the merchant and returns them to the consumer. Not only does the merchant lose the funds, they also are charged fees for this process to occur. Overall, it is the biggest risk associated with accepting credit and debit cards as a form of payment. However, there are certain things a merchant can do to protect themselves from chargebacks.

Chargebacks are especially prevalent in online businesses. Unfortunately, internet fraud is a growing problem. Criminals are using lines of credit that do not belong to them. When the card issuing bank discovers fraudulent activity, they are likely to charge back the item that was purchased by the criminal, leaving the merchant at a loss.

Preventing internet fraud is likely the best way to protect your merchant account from chargebacks. There are a number of steps that can be taken to ward off potential criminals and reduce the number of unauthorized charges that are made. One of the best ways to add protection is in your credit card processing system. Many merchant account services now require a CVV code before authorization can occur. A CVV code is the 3 or 4 digit number located on the back of a credit card. This information ensures that the person making the purchase has possession of the physical card and did not just acquire the number by hacking or some other unethical means. In addition, some merchant accounts use address verification system (AVS) as another way to verify identity.

Some of the responsibility for detecting credit card fraud falls on the merchant. Merchants should be very cautious of orders that come from foreign countries. Nigeria and Indonesia have been identified as countries that are high risk. In addition, if the shipping address is foreign you may want to investigate the order before shipping. Generally, it is not a good idea to ship to an address that differs from the billing address when processing a foreign sale. Also, merchants must pay close attention to any sale that seems unusually large or requests over night shipping. These may all be red flags for internet fraud.

Sometimes chargebacks occur that are not the result of fraudulent activity. Dissatisfied consumers or those who experience confusion about the product or services they receive may dispute charges with their credit card companies. In order to prevent these types of chargebacks, be sure that your item descriptions are accurate and the return and refund policy is clearly explained on your website. In addition, use a recognizable DBA name so that consumers will be able to identify your business when they receive their credit card statements and include your phone number. Consumers who can contact your company easily will be more likely to resolve their issue with you instead of making a dispute with their card issuer.

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