Payments Blog

The Damaging Effect of Chargebacks

Before the age of digital commerce, merchants had relatively few concerns. But today, there are a lot more things for merchants to worry about and consider. Between constantly monitoring their online site to coming up with new ways to attract consumers, merchants can sometimes lose sight of some very troubling aspects of digital commerce, most notably, chargebacks.

While most merchants have likely faced and dealt with chargebacks, a lot of these merchants may not have a comprehensive grasp on the detrimental nature of a chargeback. The damage is worse than just a loss of funds and can, in a lot of cases, be very bad for a merchant’s bottom line.

It’s not the only bad thing that happens to merchants during this process, but they do lose all the funds from the transaction. In certain cases, the issuing bank will rule in favor of the merchant during a dispute, however that’s extremely rare. Merchants also lose the product, merchandise or service associated with the transaction, if it was shipped. For merchants, losing out on a sale, especially after-the-fact, isn’t a fun process, but losing the product or service in question is perhaps more damaging, especially for smaller merchants.

Smaller merchants don’t have the same resources as their larger counterparts, which means losing even one product, without getting anything back for it, can significantly harm their bottom line.

Additionally, there is a chargeback fee, or penalty, associated with every chargeback. Sometimes, this fee isn’t substantial but, on top of everything else, it can still damage a merchant’s bottom line.

Now, it feels like everything negative about chargebacks deals with monetary losses or the loss of something that is used to make money, like a product. But there’s another aspect to a chargeback. Since the chargeback process is often a long, drawn out process, merchants typically don’t learn about a given chargeback until long after the initial sale. By this time, it’s usually too late to do anything. If they do choose to fight a chargeback, merchants will also be spending valuable manpower and resources that could be utilized in other places.

For all merchants, chargebacks aren’t just painful to deal with, they are missed opportunities to capture revenue. Additionally, since acquiring banks set limits on the percentage of chargebacks that are acceptable, if merchants accrue too many, they could be at risk of losing their ability to sell online. If a merchant exceeds this percentage, the acquirer can put them on a remediation plan to reduce their chargebacks, or they can terminate their account, rendering them unable to accept credit card payments. All these factors make chargeback prevention a necessity and a priority and, fortunately, a consumer authentication solution can serve as a preventative tool.

Cardinal’s patented rules-based solution, Cardinal Consumer Authentication (CCA), can help merchants detect and stamp out fraud, which will help them limit chargebacks. By creating their own rules, from many different data fields, merchants can gain enhanced control over their transactions, which will allow them to adjust based on certain fraudulent trends. With One Connection to Cardinal, we can Drive your Digital Commerce.

Posted by CardinalCommerce

Welcome to the CardinalCommerce blog. Cardinal is a global leader in authenticating digital transactions, with One Connection to drive digital commerce. Our goal for this blog is to provide a platform that will inform and educate our Customers and partners on consumer authentication, payments, mobile commerce, solution design and big data.

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