Chargebacks are a threat for every business, no matter the size. That said, for larger merchants, some challenges can be exacerbated. While size delivers resources and economies of scale, the higher volume of transactions often mean dealing with far more chargebacks than smaller businesses. High numbers of chargebacks can cause many issues as we’ll explore below.
It is important to note that larger businesses also enjoy some advantages when it comes to chargebacks. Many companies are now setting up chargeback teams to handle disputes. Smaller companies may not be in the position to set up a dedicated chargeback team. Larger companies can also dedicate more resources to combating fraud, which is a major source of chargebacks.
Still, while big businesses enjoy some advantages, chargebacks and fraud remain serious threats. Let’s take a closer look at some of the many challenges large businesses face when it comes to chargebacks.
The Total Costs of Chargebacks Can Quickly Add Up
Every time a business is hit with a chargeback, it’ll have to pay chargeback fees. These fees typically cost $20 to $100 and they’re assessed even if the company ultimately wins the dispute. $20 may not be much for a large business, but the costs quickly add up. The true cost of chargebacks for businesses are far greater than advertised. If your company gets hit with 1,000 chargebacks in a month, the costs could quickly reach or exceed $20,000.
Chargeback fees aren’t the only cost either. Any goods or services rendered will likely be lost as well. If an online merchant sells a customer a $300 jacket, but the customer then claims that the order was never delivered and files a chargeback, that $300 jacket is likely gone forever.
Further, you’re going to have to dedicate labor to handling disputes and chargebacks. The good news is that there are a variety of tools that merchants can use to increase efficiency and automate many processes.
Card Network Monitoring Programs Are an Especially Grave Threat
If a merchant gets hit with too many chargebacks, they could be placed in a card network monitoring program. These programs provide oversight and are designed to encourage merchants to reduce chargebacks. Unfortunately, these programs tend to hit larger businesses the hardest because they only kick in after a high number of chargebacks are incurred.
Mastercard’s Excessive Chargeback Merchant (ECM) program doesn’t kick in until a merchant accrues at least 100 chargebacks in a month. If a business is hit with 300 or more chargebacks, they can be placed in the High Excessive Chargeback Merchant (HECM) program. Visa’s upcoming VAMP program, meanwhile, excludes merchants that recieve less than 1,000 fraudulent transactions.
Crucially, it’s easier to incur a hundred or more chargebacks if you’re processing say 20,000 orders a month rather than a thousand. Thus, small businesses may have a much easier time staying on the right side of the thresholds while larger merchants could quickly end up in hot water.
Online Shopping and Card Payments Are Ever Popular
With cash transactions, you don’t have to worry about chargebacks. Some small businesses actually refuse to accept card payments in order to avoid not just processing fees but also chargebacks. If a large merchant tries to decline or discourage credit and debit card transactions, however, they could end up missing out on a large number of sales. The Federal Reserve has found that credit and debit card payments make up more than 60% of transactions.
Further, many small businesses are brick-and-mortar and don’t process orders online. Large merchants, including those with brick-and-mortar locations, often set up online shopping portals. Yet online merchants often incur more chargebacks for a variety of reasons.
Among other things, online transactions are Card-Not-Present (CNP). Fraudsters looking to make unauthorized purchases online don’t actually need to get a physical card to engage in fraud. CNP fraud is a growing storm. If they can secure the credit card number, Card Verification Value (CVV), and other data, they may be able to make unauthorized purchases. When a cardholder notices they unauthorized purchase, they can file a chargeback.
Ultimately, credit and debit card payments are essentially unavoidable for many large businesses. This means that chargebacks may be unavoidable as well.
Setting Up Chargeback Departments is Easier Said Than Done
Many large businesses set up dedicated chargeback teams. This is a wise idea and can go a long way toward reducing chargebacks and fraud. However, the chargeback dispute process is complex and cumbersome. Simply acquiring the knowledge and skills to handle chargebacks can require a lot of training.
At the same time, especially amid tight labor markets, finding employees can prove difficult, and if your current chargeback team members depart for another company, there’s a high risk that you’ll lose not just the employees, but the knowledge base needed to sustain a chargeback department. It’s wise for merchants to document as much as possible so that new employees will have an easier time acquiring the needed skills and knowledge.
Fortunately, it’s not all doom and gloom for big businesses. By using a chargeback management platform, you can make chargebacks easier to manage. You can also automate a variety of processes. Beyond directly warding off chargebacks and winning disputes, these platforms can make it easier for new employees to get up to speed.
Need help with chargebacks? The team here at ChargebackHelp can help you prevent chargebacks and win more disputes, starting today. Our chargeback management tools are designed with businesses in mind and we’ve helped countless companies reduce chargebacks and fight fraud.