Finding the Right Merchant Account for High Chargeback Payment Processing

If you have a high chargeback rate, many traditional merchant account providers won’t want to work with you. Chargebacks involve extensive investigations and are costly for payment processors, which is why they often entail additional fees and expenses. As a result, many payment processors are unwilling to take on the added risk. 

At PayCompass, we understand how difficult it can be to manage high chargeback payment processing. From preventing chargebacks from happening to finding a high chargeback merchant account provider, there are a few key solutions you can use to manage your chargeback rate. Read on to learn more.

TL;DR

• Chargebacks are expensive for merchants and payment processors. Besides leading to added fees, they can also result in account closures.
• A chargeback happens if the customer disputes a charge with their card issuer. Then, the issuer must investigate the dispute.
• Customer dissatisfaction with a product, fraudulent transactions, delayed shipping, and opaque return policies are common causes of chargebacks.
• Chargeback rates are expected to grow in the coming years, leading to added risks for businesses and payment processors.
• High-risk merchant account providers specialize in industries that have higher chargeback rates.
• Look for transparent fees, industry experience, a solid reputation, software integrations, and risk management tools when you search for a new payment processor.
• By learning how to prevent future chargebacks, you can avoid chargeback fees and account closures.
• Writing clear product descriptions, communicating shipping timelines, and clarifying your return policy are just a few of the steps you can use to avoid chargebacks.
• When in doubt, reach out to PayCompass for a professional consultation about your payment processing needs.

How Chargebacks Work

Decades ago, credit cards were invented and quickly began to grow in popularity as a payment method. In order to provide recourse for fraudulent transactions, card issuers invented the concept of a chargeback. 

Basically, a chargeback happens when a cardholder reports that a charge is fraudulent to their card issuer. After investigating the disputed transaction, the card issuer can return the funds to the cardholder. 

While this type of system helped to increase trust and confidence in credit cards, it was also a source of potential fraud. Today, cardholders use chargebacks for a variety of reasons.

• The order never arrived. 
• The item wasn’t the way it was described in the product description.
• The customer wanted a refund, but they weren’t able to get one or it took too long.
• The customer received the wrong item.
• There was some type of clerical error, such as the customer being charged multiple times for the same purchase.
• The customer disliked the quality of the item or service.
• The transaction was fraudulent.

Unfortunately, chargebacks are incredibly common. According to one survey, up to 53% of cardholders opt for a chargeback before they even consider asking for a refund. From 2024 to 2028, chargeback rates are forecasted to grow by 24%. For merchants and payment processors, this rapid growth represents a major risk to profitability.

What Is the Best Merchant Account for High Chargeback Rates? 

If your chargeback rate is too high, it can result in higher payment processing fees and difficulties getting your account approved. In severe cases, your business may even be added to the Terminated Merchant File (MATCH) list or similar lists. 

The MATCH list allows Mastercard to track and share merchants that have high chargeback rates, excessive fraudulent transactions, and other problems. While this list is also accessed by Visa and other card issuers, Visa maintains its own list as well. Once you are on this type of list, it can be hard to get off of it. 

Because of this, it pays to be proactive. A good merchant account provider offers tools for strong security and fraud detection, decreasing the likelihood of a chargeback. If you’re currently struggling with higher-than-average chargeback rates, you need a high-risk merchant account provider.

The best high chargeback merchant account provider will specialize in helping high-risk businesses. These high-risk account providers focus on industries that have high chargeback rates, so they understand the types of fraud prevention, fee structures, and customized support that you need.

Factors To Look for in a High-Risk Merchant Account

As you search for a high-risk merchant account for your company, consider the following factors.

• Transparent Fees: Fee structures can vary significantly from one merchant account provider to another. Many high-risk providers charge higher fees to accommodate the increased risks involved, so it’s essential to carefully read through the contract beforehand.
• Industry Experience: Whether you work in the tobacco industry or education, there are different types of chargebacks and fraud to watch out for.
• Risk Management: Rolling reserves, dispute management, chargeback prevention, and other risk management tools can greatly reduce the likelihood of chargebacks. These tools vary from one provider to another, so it’s important to research each payment processor before signing any contracts. 
• Reputation: To protect your business, you shouldn’t work with a fly-by-night company. Instead, look for a provider that has an extended history in the industry and a strong track record of positive customer testimonials.
• Customer Service: Even with a state-of-the-art platform and the best fraud prevention tools, problems will still crop up from time to time. When this happens, you need 24/7 customer support to help.
• Integrations: Finally, consider the payment gateway and platform options available. You need merchant account tools that can be easily integrated into the rest of your company’s software tools.

How To Process Payments When Payment Processors Suspend Your Account

If your merchant account is suspended, there are a few steps you can take to process payments. While you can accept cash, checks, and peer-to-peer apps in the short term, you’ll need to find a more comprehensive solution over the long run.

1. Contact Your Payment Processor

The first step you need to take is to talk to your payment processor. Ask for a written statement that covers your suspension. You can also ask if there are ways to resolve the problem by adopting additional fraud prevention techniques or using a rolling reserve.

2. Download Your Statements

Before you open up a high chargeback merchant account, download all of the statements that exist at your current payment processor. You can use these statements to show that you were in compliance and had an account in good standing prior to the suspension. Your future payment processor will likely want to review these statements to determine if you should be given a merchant account or not.

3. Turn in an Application for a New Merchant Account

If your company or industry is considered high risk, the best long-term solution is to find a merchant account provider that works with high-risk accounts. To streamline the application process, make sure your chargeback reports and compliance documents are prepared. Then, carefully research high chargeback payment processing providers, fee structures, and processor options to ensure you make the right decision.

4. Resolve the Underlying Problem

When your account is suspended, your initial response should focus on damage control. You have to find an alternative method for accepting payments and figure out which payment processor is willing to set up a new account.

After the initial damage control, you need to think long term. The only way you can prevent this from happening in the future is by solving the underlying problem. 

For example, a high number of chargebacks may be due to a strict return policy. By communicating your return policy and making returns easier, you may be able to reduce the rate of chargebacks at your company and avoid future issues with your merchant account.

How To Reduce Chargebacks

When it comes to chargebacks, the best method for dealing with them is prevention. Besides saving you money on costs, chargeback prevention can help you avoid merchant account complications. 

To get a better idea about how to reduce chargebacks at your company, we’ll look at some of the major factors leading to chargeback disputes. Then, we’ll dive into the most important steps you can take to reduce chargebacks from happening in the future. 

Contributing Factor	What It Is	How It Impacts Chargebacks
High Transaction Volume	When there is a sudden increase in transactions, it can temporarily overwhelm fraud-detection features. This can raise the number of chargebacks.	Insufficient verification can moderately increase fraudulent transactions.
Subscription-Style Billing	If customers are automatically billed for a subscription, it can lead to chargebacks. They may forget about the future payment or be unaware they agreed to a subscription.	This is a frequent cause of friendly fraud.
Digital Goods and Services	Because there aren’t physical goods involved, customers have an easier time arguing and winning chargeback disputes about digital products. For example, customers can argue that they didn’t receive video game coins or a rented video.	Thanks to the easier and more successful rate of disputes, your chargeback rate may increase significantly.
Poor Customer Service	If a customer can’t reach customer service for a refund or their order is significantly delayed without any communication, they may use other means to get their money back.	This factor can greatly increase chargeback rates.
International Transactions	Time zone, currency, and language differences impact customer service, communication, and other chargeback factors.	International transactions can have a moderate to high impact on your chargeback rate.
Mismatched Names on the Bill	If your billing descriptor doesn’t match your company’s name, it can confuse customers and make them think that the charge wasn’t authorized.	This can lead to a high likelihood of chargeback disputes.

1. Consult With Your Payment Provider

To reduce chargebacks in the future, the first step is to talk to your payment provider. Often, payment providers have specific chargeback prevention tools that can help you lower your chargeback rate. Similarly, your payment provider likely has authentication tools you can use to prevent fraudulent transactions.

2. Clarify Your Return Policy

One of the most effective ways to avoid chargebacks is through a clear, well-communicated return policy. When customers can’t return a product easily, they turn to chargebacks instead. 

Because of this, it’s a good idea to be lenient about your return policy. Communicate it to clients, so they know how long returns will be accepted and how to initiate them. 

If clients can easily return unwanted items, they won’t have to file a chargeback dispute. While chargebacks and returns both involve lost revenue, chargebacks involve added fees and can lead to your account suspension. Because of this, returns are always preferable to chargebacks.

3. Improve Transaction Security

Sometimes, chargebacks occur after a credit card is stolen or used for an unauthorized purchase. To avoid this issue, use contactless payments. Contactless payments use NFC technology to ensure an added level of security. 

Besides contactless payments, you can increase your transaction security by requiring a signature or PIN with each transaction. Additionally, keep your software up to date so that you can avoid hackers and other security vulnerabilities.

4. Write Clear Product Descriptions

If a product is described incorrectly, the customer will likely want to return it or file a chargeback. Periodically, you should review your product descriptions to make sure they match the product that the customer will eventually receive. 

5. Regularly Update Your Inventory

Similarly, you should maintain an updated inventory on your website. If a product incorrectly appears to be in stock, a customer may purchase it. Eventually, they’ll either return the product or file a chargeback. By updating your inventory as products sell out, you can avoid this issue entirely.

6. Provide Fast, Responsive Customer Service

When clients cannot reach a customer service representative, they are more likely to file chargeback disputes. Providing customer service via chat, phone, and email gives your clients options when they encounter problems. Rather than file a chargeback over a subscription fee or being double charged, the customer can get immediate help from your team.

7. Communicate Shipping Timelines

When shipping timelines are delayed, it can increase the odds of chargebacks. While you can’t force UPS or FedEx to operate any faster, you can communicate about shipping timelines. If a customer is aware that shipping takes two weeks, they won’t file a chargeback when they haven’t received the product after a week. For the same reason, it is always a good idea to send tracking information to your customers.

8. Avoid Automatic Billing With Free Trials

Many subscription-based businesses automatically bill the client after a free trial ends. While this automatic billing is an incredibly common practice, it can significantly increase your company’s chargeback rate.

Instead of having disgruntled clients and chargebacks, send your customers an email at the end of the free trial that requires them to opt in before they are charged. While you might receive fewer subscription sign-ups, your chargeback rate will drop significantly.

9. Match the Name on the Bill With Your Company Name

One easy way to reduce chargebacks is by making sure your billing name matches your company name. If these two names are completely different, the customer may not realize who is charging them and think that it is a fraudulent transaction. By simply updating your billing name, you can completely prevent this issue from happening.

How PayCompass Can Help With High Chargeback Payment Processing

At PayCompass, we can prevent chargebacks in a few key ways.

• Advanced Chargeback Prevention: Our company has experience in preventing chargebacks in diverse industries. We understand the challenges of high-risk merchant accounts.
• Transparent Fees: At PayCompass, we’re committed to providing a transparent fee structure. When you work with us, you don’t have to worry about hidden fees.
• Customized Solutions: We customize our chargeback solutions to the unique needs of each business and industry.
• Next-Level Security: Our team is committed to offering the highest level of security and reliability possible.

Final Thoughts

If you’re struggling with high chargeback payment processing, it’s essential to work with the right merchant. Many merchants aren’t equipped to deal with high-risk accounts. 

At the right high chargeback merchant account, you can access the payment processing services you need. More importantly, you can get support through advanced fraud and chargeback prevention tools.

At PayCompass, we have years of experience working with all types of businesses and industries. To discuss your company’s merchant account goals, reach out to our team of payment processing experts today.