‘Chargebacks!’ The chiefest and the greatest terror filling phenomenon of online merchants worldwide. If you haven’t heard of chargebacks before and assumed they were just too insignificant to be mentioned, you are gravely mistaken because sooner or later you will have your chargeback horror story to tell.
Chargebacks came to existence to instil confidence and provide protection to online customers from credit card scamsters and fraud merchants. Ideally, the card networks were to play the role of big brother watching over the online customers from wrongful actions of merchants. But over the years the loopholes in this poorly framed mechanism have been exposed and what was once a tool against fraud merchants has now turned into a tool against credit card merchants.
How can it affect you?
Ideally, chargebacks are just credit card refunds and should not be affecting your business much. Where’s the difference?, Well these are forced refunds, the one where the card network twists your arm and makes you cough up the money that you thought were profit. Meaning, the cost of making the product and profit you’ve gained on it is gone, poof! Wait, it doesn’t end there remember the transaction fee you paid, say goodbye to that too and finally adding some salt to the wound, you’ll end up dishing an additional $50 chargeback fee too.
And when these chargebacks slowly add up to a decent amount(say 1% of your sales), get ready to be slapped a hefty fine(around $5000). If this slowly hits 2% of your transaction amount, you’re all set to say goodbye to credit card processing.
But not everything is gloom and doom, chargeback claims can be subject to dispute at either the payment provider or card network level.
The good part: you can contest it with appropriate proof, the bad part: it is as fun as filing taxes and the ugly: Only 21% of chargebacks lodged globally are decided in favour of the merchant.
Machine learning, Big Data and GeoLocation checks seem to provide an acceptable solution, but for bootstrapped startups some simple tweaks and tricks can actually do wonders in reducing and easing chargeback process.