For any business, chargebacks are a fact of life. Chargeback management is complex, costly and challenging, especially to small businesses. Many business owners open a merchant service account in order to effectively manage chargebacks and payments. However, if your bank or other financial institution turns down your business for merchant services, you should consider a quality high-risk merchant account for managing business chargebacks and payment processing.
At Premier One Payments, a full-service high-risk payment processor, existing clients and those interested in opening a merchant account with us often ask about using a high-risk merchant account to manage chargebacks.
Here are some FAQs about high-risk merchant accounts:
What is a chargeback?
A chargeback is the return of funds from the seller to the consumer when there is a payment dispute. The dispute often concerns the legitimacy or quality of merchandise or services from a business. The consumer files a claim through the bank or credit issuer for the return of payment made through a credit or debit card, ACH, mobile device, check, wire transfer or other payment methods such as a prepaid cash card.
If the consumer’s bank or credit company agrees with the complaint, the merchant’s business account is debited. But the merchant also pays its servicing institution an administrative fee for chargeback handling.
Resolution of payment disputes, as well as payment processing, is part of merchant account servicing. If a business has a high volume of chargebacks, the bank or merchant service provider might assess penalties and higher administrative fees or terminate the merchant’s account.
Chargebacks vs. refunds
A refund happens when the merchant returns money directly to the customer, either electronically (e.g. crediting the transaction back to the customer’s charge account) or through cash or check. Refunds often involve the return of an item the consumer purchased. The customer returns the merchandise and presents a receipt as proof of purchase.
In a chargeback, however, the merchant investigates the payment dispute with its bank or payment processor before returning funds to the consumer. Many chargebacks involve payment for services such as dental work, cosmetic surgery, computer fixes and appliance repair. Some chargebacks involve disputes over purchases of “big ticket” items, such as machinery and building materials.
Standard chargeback vs. return item chargeback
The business pays fees and penalties for a merchant chargeback. However, if a customer’s check bounces or an electronic payment cannot go through because of insufficient funds or an expired credit card, both the customer and merchant may be liable. More banks are labeling consumer account debits for insufficient funds as a return item chargeback. However, the seller might also receive a chargeback for the bank’s efforts to process an invalid payment.
What triggers a chargeback?
Billing errors (e.g. hospital bills, insurance premiums, double billing, etc.), customer dissatisfaction over a purchased item or service, fraud, processing errors and other payment incidents (e.g. ticket cancellation, canceled airline flight, etc.) can prompt customers to demand the seller return the money. This can trigger a merchant chargeback if the seller is determined to be at fault.
How can a high-risk merchant account help with chargeback management?
Even if your business is low-risk or medium-risk, it will eventually experience its share of chargebacks. Financial institutions have stringent policies for the quantity and types of chargebacks considered acceptable, and they are heavily regulated. If your business incurs too many chargebacks, your financial institution may terminate your merchant account.
Merchant processors who care, such as Premier One Payments, make an effort to mitigate penalty and administrative fees. We do this through our comprehensive Chargeback Protection Services. Working closely with reputable high risk merchant processors such as Premier One Payments can help your business come up with a solution to online payment and financial institution disputes.
- We’ll work with you to detect and prevent fraudulent or illegal activities, including friendly fraud.
- You can provide a list of companies you work with so we can help you weed out those who tend to initiate high-volume chargebacks.
- We will help you verify customer bank and credit accounts before accepting payment.
- We’ll help you develop solid return policy guidelines for your business to discourage consumers who seem to specialize in high-volume merchandise returns or who constantly file complaints. A well-crafted disclaimer and firm return policies can discourage a (potentially) tough customer.
- Premier One Payments acknowledges that any business can become the victim of circumstances that lead to a “high risk” classification. We have assisted merchants with damaged credit rebuild their credit status.
- We will examine a customer’s case for evidence of validity and accuracy before initiating a chargeback.
- We safeguard consumer and merchant privacy to prevent identity theft or the compromising of a company’s reputation.
- Premier One Payments has the tools and experience in chargeback management that other financial institutions may lack.
Call or email us for more answers to your questions. We have experts standing by to help with your merchant service account management or application. Reputable high risk merchant processors have something other merchant service providers don’t have: flexible servicing term arrangements.