Another challenge is forthcoming in high risk online merchant services

Another challenge is forthcoming in high risk online merchant services

It’s safe to say that chargebacks can be the root of all evil. In high risk online merchant services, we know many merchants who will agree with us. Internet merchants have had to adapt quickly to the many changes in dealing with chargebacks:

  • First there was Visa’s (then Mastercard’s) pivotal decision to halve its chargeback tolerance in 2015, from 2 percent of sales or 200 chargebacks per month to 1 percent of sales or 100 per month. Merchants who neared the new threshold were/are subject to probationary measures.
  • Then came another landmark move by Visa when it introduced the Visa Claims Resolution in 2018, when it not only revised the resolution process, but established shorter time frames for action for merchants and consumers who were in dispute.
  • In January, Mastercard announced it was targeting merchants that employ negative option billing tactics, which place a rather unfair burden on the consumer.

Get the message?

The card brands are not only cracking down on chargebacks but seemingly all practices that can result in chargebacks — especially with industries in high risk online merchant services.

More changes are forthcoming.

Lower than 1 percent? In high risk merchant services?

According to a recent report in Digital Transactions, Visa’s 100 chargebacks-per-month threshold for a low risk business will remain in tact (for now…but you never know). The 1 percent standard, said the article, will be reduced to 0.9 percent beginning in October. Similarly, its Fraud Monitoring Program, which has a fraud-to-volume standard of no more than 1 percent, will be reduced to 0.9 percent.

Why chargebacks have increased significantly

We’re big fans of ClearSale, a fraud and chargeback prevention consultant. According to ClearSale, 86 percent of chargebacks are probably instances of friendly fraud. They also estimate that such chargebacks have risen more than 40 percent over the last two years. Here are more disturbing numbers:

  • 40 percent of those who do commit friendly fraud are likely to do so again within 60 days
  • According to research specialist Javelin, chargebacks cost merchants $31 billion in 2017.
  • 60 percent of that $31 billion was spent by merchants disputing chargebacks.

The Cure: Merchants must be diligent with every customer

It’s so easy for a consumer, when s/he is dissatisfied with a product or service, to simply contact their card issuer and dispute the transaction. It’s too easy, frankly. In a perfect world the consumer would/should contact the merchant directly to resolve the dispute. 

How do merchants — especially internet or card-not-present merchants — accomplish this? Overt communication. If we can offer any advice to our network of e-commerce merchants, it would be the following, word for word.

‘For returns, exchanges and general inquiries, contact us at (example) 1-800-555-5555.’

Because we offer high risk online merchant services, we’ve preached about having a return policy and contact information prominently displayed on the home page. Return policies that are hidden, as well as a built-in e-mail form as the main source of contact, simply do not inspire consumer confidence. Nor does a return policy that is too strict, such as one that allows only 10 business days for customers to make returns. 

We also recommend confirmation e-mails as another opportunity to inform of return, exchange and contact information (though GDPR and standards similar should be adhered to).

Generally, merchants who cross the Visa and MasterCard thresholds are given 90 days to present a plan (at the very least) and begin to show improvement, though extensions for improvement are permissible. 

The point the card brands are getting across, however, is that it’s up to the merchant to be diligent — at the very least.

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