What Are Chargebacks? And Should Your Business be Worried?

Find out about chargebacks and chargeback protection. Manage chargebacks and keep your business and customers safe.


Wednesday, February 19th, 2020

If you’ve just started your business or are planning to put your business plan in motion soon, you might be wondering, what is a chargeback? And should you be worried about your business? Specifically, what do they mean for your business?

In simple terms, a chargeback is a reversal of a credit card payment that comes directly from the bank. For merchants, chargebacks are a serious threat to your livelihood and your business’ success. For the consumer, on the other hand, chargebacks represent a shield between them and dishonest merchants. The struggle arises when these two things come into conflict with one another.

The chargeback process is designed towards the cardholder’s safety in several ways:

  • The risk of forced reversal of funds keeps merchants focused on providing exceptional services; thus, making customers feel more secure.
  • Chargebacks also serve as a deterrent to merchants who might be tempted to sell sub-par products or services. The threat of chargebacks ensures merchants remain transparent.
  • They also help protect cardholders from the effects of criminal fraud.

If you’re wondering about chargebacks, you should also familiarize yourself with the term “friendly fraud”. Also known as chargeback fraud, friendly fraud refers to customers deliberately stealing from merchants by claiming legitimate purchases are fraudulent. There are many situations in which a cardholder might file a chargeback.

Here are a few of the most common:

  • The consumer has “buyer’s remorse”
  • They feel the return process is too cumbersome
  • The consumer forgot about or didn’t recognize the transaction
  • The cardholder wants something for free
  • A family member made the purchase, and the cardholder doesn’t want to pay
  • The consumer did not act quickly enough, and the return time limit expired.

The Costs of a Chargeback for Merchants

Unfortunately, chargebacks have short and long-term ramifications for merchants. Every time a consumer files a chargeback, the merchant incurs a fee. (Even if the consumer later cancels the chargeback, the merchant is still responsible for paying that fee and any other costs involved.) To make matters worse, if the consumer files a chargeback and keeps the merchandise, the business also loses that revenue – and any future potential for profit.

There are also other consequences that can affect the long-term health of a business. If monthly chargeback rates exceed a predetermined threshold, for example, fines might be levied against the business. If those rates remain too high, the acquiring bank could decide to terminate the merchant account. Without a merchant account, the business will be unable to process credit and debit card transactions.

Once the merchant’s account is terminated, the business is then placed on the MATCH list. For at least five years, the business will be unable to secure a new account, even with a different processor.

Secure Chargeback Protection with a High-Risk Provider

If your business is struggling with high chargeback ratios or you want to stay ahead of them, compare the best chargeback solutions on Best Payment Providers. The key to managing and preventing excessive chargebacks is to partner with a provider that understands the risks of your business type and the obstacles your industry faces. With the help of Best Payment Providers, you can quickly secure chargeback protection and prevention services. An account can be set up in as little as 24 hours, allowing you to continue to operate smoothly and protect your business and your customers.