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What Is Chargeback Protection for Merchants?

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Last editedSep 20222 min read

When a customer disputes a transaction, the burden of proof – and accompanying fees – often fall to the business. While every business faces these chargebacks from time to time, a high chargeback rate can be costly. Merchant chargeback protection offers a way to mitigate these risks while cutting costs, but what is chargeback protection and how does it work? Here’s a closer look at chargeback protection for merchants to help you choose the right service.

What is chargeback protection?

Chargeback protection services take on the liability from unauthorized transactions or fraudulent disputes. Normally, it’s up to the business to supply proof that a chargeback is fraudulent, paying any fees in the meantime. When you use a payment processor or dedicated merchant chargeback protection service, they’ll cover some level of the costs.

Depending on the provider, some services will also fight disputes on your business’s behalf. For example, some payment processors have automated processes put in place to analyze and inspect transactions. They’ll reimburse your business should a dispute take place. However, chargeback protection for merchants varies significantly between providers so it’s always a good idea to read the fine print carefully.

What causes chargebacks?

One of the best ways to reduce chargebacks is to understand their root causes. There are three main causes of chargebacks to be aware of:

  1. The buyer commits intentional fraud. An example would be a fraudster using stolen credit card numbers to place orders or filing a dispute with the intent to keep the purchased item without paying.

  2. The buyer commits what is known as “friendly fraud,” where the dispute is filed due to an honest mistake. Examples could include forgetting about a purchase they’ve made, or a family member using the credit card without telling the cardholder.

  3. The merchant makes an error, such as accidentally charging the customer twice for the same item or charging the incorrect price.

While chargeback protection for merchants can protect you from fraudulent disputes, it usually won’t prevent you from merchant errors. You’ll need to put systems in place to avoid errors with payment.

What are the benefits of merchant chargeback protection?

The process of disputing chargebacks can not only cost money in the form of fees and refunds, but also be time consuming. If your business wants to fight an unfair chargeback, you’ll have to provide extensive documentation to prove your case. This includes evidence such as:

  • Product information

  • Proof of delivery

  • Sales receipts

  • Returns policy

  • Documentation of communication

There’s usually a small window of time to gather this proof and submit it, which is easy to miss if you don’t have automated systems in place to catch discrepancies with transactions. Fraudsters take advantage of this fact by filing their disputes long after the sale has completed, knowing the business is unlikely to have time to fight back. Using a chargeback protection service eliminates much of this uncertainty, saving your business time and money.

What is the best chargeback protection?

When it comes to choosing the best chargeback protection, merchants have an array of options. There are dedicated services solely designed to fight chargebacks, but many payment processors also have built-in chargeback protection as a standard feature. Whether or not you pay for this service, there are a few additional steps you can take to reduce chargebacks.

  • Ask for security codes: Using additional security features helps prevent the use of stolen credit card numbers.

  • Use an address verification service (AVS): These match addresses with credit card information to verify a customer’s identity and reduce fraud.

  • Use alternative payment methods: Of course, accepting alternatives to credit and debit cards provides a good way to avoid chargebacks in the first place. With GoCardless, money is pulled directly from customers’ bank accounts using Direct Debit, for reduced failed payment rates and less churn.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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