Case Study

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Chargebacks Cost More than Just the Sale – Chargebacks can be very costly to merchants. In addition to the lost revenue from a transaction, many payment companies charge a chargeback fee to merchants. This means that merchants are penalized by not only losing a sale, but also in the wasted time and effort of handling an order, customer service and shipping costs.

Cost of chargeback

As an example of the real cost of a chargeback, we can use a typical transaction for a bicycle merchant selling online:

  • Bicycle: $500
  • Accessories: $95
  • Shipping: $50
  • Payment processing fees: $19
  • Customer service/handling fees (human cost of prepping an order, packaging it for shipment): $10

The total cost of the transaction is $674. Add a chargeback fee of about $50, and the costs have skyrocketed to over $720. Some of these costs, like customer service and shipping materials, cannot be recovered even if a chargeback goes through a successful representment.

Avoiding chargebacks

The cost of a chargeback is about 20 percent more than the initial sale, so there are clearly some benefits to having a strong practice in place to avoid chargebacks. Merchants should be familiar with the proper procedures for handling payments. For example, processing an expired credit card will almost certainly result in a chargeback, so instructing customers to double check data entry online can be a good best practice.

Another way to avoid chargebacks is to ensure that customers can reach you when they have a problem. It is not uncommon for customers to dispute a charge without first trying to work it out with the merchant. In fact, one survey found that more than 80 percent of consumers filed a dispute because it was more “convenient” than contacting the merchant. Making it easy for customers to contact you about problems with a purchase can help avoid the huge costs of a chargeback.

Employing a chargeback prevention system is another way to help merchants take control of chargebacks. Pinpoint Intelligence’s Pinpoint Alert helps clients reduce chargebacks filed against them by 40 percent, which eliminate any of the costs before they happen. Pinpoint allows merchants to try to resolve disputes before they become a chargeback. The benefits are not only reduced chargebacks and associated fees, but potentially higher customer satisfaction because their issues are more resolved faster.

Representment benefits

Successfully challenging a chargeback returns the full cost of the transaction to the merchant. According to the 2016 “Annual Fraud Benchmark Report,” merchants won less than half of representments (41 percent), but having a partner like Pinpoint Intelligence can increase your odds of winning. Merchants using the Pinpoint Representments system had a success rate of 72 percent of challenged chargebacks.

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