Consumers receive their credit and debit cards from banks known as “issuing banks”. These banks provide their customers with a form of protection by allowing the
cardholder to file a complaint against fraudulent transactions. This is known as a reversal or a chargeback. Once the consumer files a dispute with their bank,
the bank makes an investigation into the complaint. If the complaint is proven to be fraudulent, the issuing bank will forcibly take the amount from the merchant’s
account to refund to the cardholder. Often times, the bank sponsoring the merchant’s account will take their own fees as well. If, however, the consumer’s
complaint is proven to be untrue, no refund is requested from the merchant although additional processing fees may still be charged.
Although accepting credit and debit cards is extremely beneficial to your business, there can be major drawbacks caused by chargebacks. The process can be rather complicated and can cost you unnecessary fees. The collection agency industry also has an industry standard of an amount of chargebacks a collection agency is expected to operate under. Currently, the industry standard is to maintain a chargeback ratio of below one percent on monthly statements. Having a higher ratio on your overall monthly processing statements can lead to a closure of their merchant account.
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