We’ve come to know countless online merchants in our near 20 years of offering online merchant account services, well into the thousands. But we’ve only seen a handful of them self-handle their chargeback rates exceptionally well. There are only a few merchants among them — less than 20, we’d say — that are absolute professionals in maintaining their chargeback rates to a minimum.
Some merchants do what they can, others still chalk it up to ‘the cost of doing business,’ which can be extremely dangerous. For some merchants, high chargebacks result in the downfall of their business.
So when, exactly, should a merchant defer to a third party to handle chargebacks rather than handle them in-house?
Know your industry — we mean know your industry
There is not a single credit card processing online business that doesn’t incur chargebacks, especially from the worsening rash of fraud in cyberspace.
Alas, chargeback rates vary over business types. Merchants that sell results-based products — tech support, nutraceuticals or online dating — are certain to have higher chargeback rates than say an e-cigarette merchant or even a subscription-based merchant. We receive many inquiries for online merchant account services from high chargeback businesses each week, some merchants we can help and others — who have chargeback rates 2 percent and higher — we cannot.
A fair amount of those merchants are incredulous about why we can’t get them a merchant account approval, leaving us to explain that their chargeback rates make them too much of a risk. Merchants in high chargeback industries must fully know what they’re getting into.
The telling signs it’s time to outsource
The benefits of contracting to a third party to handle chargeback and fraud issues are many: it’s their one job, peace of mind and of course, recovered revenue. One benefit that goes overlooked is the skillset and tools that a chargeback management firm may pass along to a merchant. Not all firms disclose their ‘secret sauce,’ but we know several which pass along effective tips and tricks, eventually leaving merchants to successfully fend for themselves.
We urge troubled merchants to recognize when chargebacks are becoming a danger, or risk losing their online merchant account services. It involves taking a hard, self-critical look in certain areas:
- Nearing the threshold: Firstly, when a merchant is nearing the 1 percent of sales/100 chargebacks per month threshold, it usually triggers a warning from the card brands and/or the acquiring bank, which may intervene.
- Overlooking signs: A merchant who encounters an increasing number of chargebacks also likely has a fraud problem, and may not be recognizing the signs. This is the specialty of chargeback management firms.
- Lacking customer service: Many chargebacks are the result of poor customer support. Thus merchants have had to bolster their support processes and examine user experience.
- Not in the schedule: This is particularly true with online startups, when lack of staffing limits responsibilities, thus enabling chargeback rates to grow.
One quick tip for high risk merchants (with limited resources)
One of our favorite merchants has successfully run a nationwide online food delivery business for nearly 20 years, and has mitigated chargebacks to minimal levels. Among other practices and procedures he uses is direct contact: in the event of a chargeback, he’ll telephone the customer to ask why they filed the chargeback, and if the customer would consider a reversal for an incentive: perhaps a replacement order or 20-30 percent of their next purchase.
Not every merchant can afford third party chargeback management services. Communication, however, is a huge deterrent.
What we recommend
From what we’ve seen over nearly 20 years of offering online merchant account services, e-commerce merchants fall into three categories when handling chargebacks:
- Those who manage effectively, like our merchant mentioned above.
- Those who attempt to manage effectively, but are inconsistent and could do better.
- Those who hover around (or break) the 1 percent/100 per month threshold.
With high chargeback industries such as the aforementioned tech support, nutraceuticals and online dating (especially startups), we recommend merchants partner with a chargeback management firm in the beginning stages of their business, learn the nuances of mitigation until comfortable or have the staffing to mitigate in-house.
Are you a merchant who handles chargebacks in-house? We’re interested in hearing of your tips and tricks. Leave a comment below.
For more about Instabill’s online merchant account services, our account managers are always up for a conversation about the possibilities at 1-800-530-2444.