Term

Merchant Protection

noun

Merchant protection is a system of methods merchants adopt to protect themselves from a chargeback.

What Is Merchant Protection?

Merchant protection is an important part of any ecommerce business. Credit card chargebacks happen daily due to rising cases of online fraud. When you look at the alarming numbers of cases of chargebacks, it becomes clear that protecting yourself can significantly boost your bottom line.

Chargebacks are so damaging because they cost way more than just the transaction amount. When you add the bank fee, overhead, and other related costs, chargebacks can cost you two times the original amount.

Merchant protection refers to the methods you adopt to protect yourself from a chargeback. It all starts with identifying the type of chargeback you are receiving. Fraud prevention tools, refund policies, and delivery confirmation messages are the best ways of dealing with chargebacks and reducing them.

Merchant Rights

Unfortunately, merchants do not have many rights when it comes to fighting chargebacks. Even if you have a no refund policy, the customer can still file a chargeback. Despite the limits, merchants are advised to clearly display their policies on the website to inform customers about the sales rules. In most cases, banks tend to favor the cardholder over merchants. This is why merchants must do everything to have well-documented purchases aligned with rules set by card networks.

What Are the Common Merchant Protection Methods?

True Fraud Prevention

Preventing true fraud chargebacks requires making sure that your customers are what they say they are. There are many fraud prevention tools available for merchants with varying capabilities like:

Friendly Fraud Prevention

For friendly fraud chargebacks, the best way is to improve your customer service. Friendly fraud is often the result of the customer not getting what they wanted from the merchant, so they lose patience and contact their bank.

If your customers know that you are readily available to help and solve their queries, friendly fraud becomes a distant chance. The following approaches can help as well:

Set realistic expectations of your products that do not disappoint the customer once they receive the order
Have a generous refund policy
Fulfill orders quickly and inform the customer about any delays
Use a clear merchant description, so the customer knows who they paid

Merchant Error Prevention

As the name suggests, merchant error protection means taking steps to reduce chargeback errors. The problems you need to address in this category can be solved by paying attention to customer feedback. Here are a few general suggestions to steer clear of merchant error chargebacks:

Use a reliable and efficient customer relationship management software
Check orders for duplicates, address mistakes and other issues
Quickly issue refunds for incorrect or canceled orders
If you are unsure about anything in an order, contact the customer directly to clear confusion

What Is a Chargeback?

A chargeback is the amount returned to a debit or credit card after a customer disputes the monetary transaction. A chargeback can also be the result of the customer returning their order. In simple words, chargebacks are issued by a customer, evaluated by their bank, and paid by merchants.

Chargebacks for credit cards first appeared in the 1974 Fair Credit Bill, and debit chargebacks were implemented later by the Electronic Funds Transfer Act in 1978. The acts came about to protect customers from fraud.

Think of it this way: before the bill, the cardholder had no way of getting their money back once the merchant was paid. The chargeback process gives power back to the customer and their bank to help them decide how to handle a situation. The chargeback process can be initiated by the merchant or the cardholder’s bank.

What Causes a Chargeback?

The most common chargeback causes include unclear merchant descriptions, bad customer service, and credit card fraud. Each kind of chargeback happens for a different reason, so there is no solitary solution to deal with them all. Two merchants in the same industry can have a chargeback for very different reasons, and both will be valid cases.

Types of Chargebacks

There are three main types of chargebacks one should look out for:

Fraud: if the purchase was made using stolen credentials, it would be considered a true fraud.
Merchant error: a mistake on the merchant’s part led to the chargeback. For example, the merchant made a mistake in payment processing or shipped the wrong order.
Friendly fraud: the cardholder’s order was delivered as it was placed, but the cardholder disputed the charge out of ill intent.

Third-party Chargeback Protection Methods

Another way to protect your business from chargebacks is to get help from third parties that are skilled in dealing with chargebacks. Companies offer chargeback alerts that warn you early on about an incoming case. When a customer reaches out to their bank for a chargeback, you or the third-party company will receive an alert about it. You can prevent the case from getting worse by immediately issuing a refund.