Chargeback Penalties

Credit Card Fraud Articles & Best Practices

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Credit card fraud is an increasing threat to businesses selling goods and services through the internet. Online merchants have to offer their clients payment by credit card if they want to increase sales and keep existing customers, however, if fraudsters have used a stolen credit card or its data to purchase goods the merchant loses money because of chargeback penalties. Merchants can refuse to accept transactions that they are suspicious of in order to avoid chargeback penalties; however, this can have a detrimental effect as the merchant could end up losing out on legitimate sales.

Normally a chargeback will start with the credit card holder noticing a discrepancy on their statement whereby they will have been charged for a purchase that wasn't authorized by them, they will make a complaint to the credit card provider. Mostly, the merchant is responsible for the fraudulent transaction, unless they can show that the transaction was valid. The provider will take the original amount from the merchant plus an administration fee levied by them, so the merchant loses the goods or services provided, plus the amount paid for them and the fee levied. This is known as the chargeback penalty. There could also be currency conversion commissions to be paid. The bank collects the chargeback fees as they arise so the merchants' bank account could become overdrawn and bank charges incurred.

If the merchant is dishonest or just doesn't have the money to return then the credit card provider is liable for returning the funds to the customer, so to minimize this risk, the merchants chargeback risk is assessed rigorously. Many credit card frauds can be stopped when the customer inputs their personal details; if the merchant has an efficient security check he will prevent many chargeback penalties himself as well as gaining a reputation as a trustworthy business with the credit card provider.

Credit card companies set a limit to the number of chargebacks generated by a merchant. If the number of chargebacks goes above this limit then the merchant will be fined by the company. As well as penalties and fines imposed, chargebacks can also harm a merchants business and reputation. If, even after a fine is imposed, the number of chargebacks continues to be high, the credit card provider can decide that the costs are too high and cancel the merchants account. The merchant would be unable to accept credit cards as payment on his website and consequently lose out on sales.

There are many effective and valuable online credit card fraud systems on the market today that can help prevent chargeback penalties. The systems are designed to identify attempted fraud in the early ordering stages and alert the merchant so they can void the transaction. Many online merchants have no understanding of the extent of online fraud and overlook it until it is too late; awareness arrives with costs, fees and penalties. Costs of purchasing an anti-fraud system will far outweigh penalties incurred and protect your business reputation. There are a number of good websites that provide anti-fraud systems.