No matter the industry, chargebacks are a serious issue for business owners. In fact, 70% of chargebacks are the result of fraudulent activity. These practices have cost merchants almost $11.2 billion in revenue since 2015.
Chargebacks can occur in several ways, but the most common are friendly fraud and true fraud. Friendly fraud occurs when services are rendered and a customer lies about the quality of those services. True fraud occurs when information is stolen either directly from a business or from customers through a business.
Even a 1% chargeback rate, meaning one chargeback per every 100 successful orders, is detrimental to a business. This is also the industry standard, and is the maximum allowed for merchant accounts.
There are four main reasons for chargebacks: fraudulent transactions, credit not processed, item not received, and technical issues. In order to prevent these issues from happening in the first place, it’s imperative that a business’s online security is airtight.
Not only can chargebacks cause security issues, they can cause debt issues as well. Approximately 30 million Americans have at least one debt in collections currently, with unpaid medical debt being the number one cause of bankruptcy in the United States.
More than 20% of households in the U.S. have some form of medical debt, with the average amount being $1,400. Hospitals and other medical care providers are collection agencies’ number-one clients.
Whether chargebacks threaten to compromise your information or put you in a tight financial situation, make sure you’re protecting your business before chargebacks can ever happen.