If you own a business, then you accept payments using cash and through credit and debit cards. The latter is the most popular payment method in the world. In a report by FIS, credit card transactions grew 6% YoY between 2021 and 2022, and global credit card transactions exceeded an astonishing $13 trillion in 2022. Despite the staggering growth in credit and debit card transactions, and the convenience they have brought both customers and businesses, there remains one major headache associated with them, chargebacks.
Chargebacks have been the bane of businesses. If a consumer initiates a chargeback, banks withdraw the disputed funds from the merchant’s account and transfer them back to the customer. Chargebacks have also been abused by customers, leading to businesses facing significant losses. So what is the solution for fraudulent chargebacks? In this article, we will examine the problem and how businesses are fixing chargebacks with cryptocurrency payments.
What Are Chargebacks?
Before discussing fixing chargebacks with cryptocurrency payments, let’s understand what a chargeback is. A chargeback refers to a payment returned by a business after a customer successfully raises a dispute. Customers can raise a dispute for various reasons, such as the quality of goods or services, unauthorized transactions, or credit card fraud. When a chargeback occurs, the bank withdraws the disputed funds from the merchant account, transferring them back to the customer. Chargebacks play a crucial role in the larger payments ecosystem despite the potential for abuse, giving customers recourse against errors and fraud. This becomes especially important in e-commerce, where there is a high risk of third-party fraud.
The State Of Chargebacks Today
However, there is a downside. While chargebacks were created to protect customers from fraudulent charges, they can be abused by dishonest customers and scammers. As a result, merchants and businesses have to go through an exhausting and expensive dispute process. Most of the time, merchants simply accept the chargeback along with its associated fee.
Chargebacks can also be exploited by scammers who utilize stolen credit card information to make purchases and then initiate a chargeback stating that the charges were fraudulent. This leads businesses to lose significant revenue and incur the cost of dealing with their lost inventory.
Chargebacks can be a significant financial burden on merchants and businesses. Customers end up initiating a chargeback over problems and issues that were never intended to be addressed via chargebacks. Most of the time, customers raise a dispute without contacting the business and ironing out a resolution. As a result, global chargeback rates have seen a steady climb year after year.
Chargebacks Are Crucial But Easy-To-Exploit
Undoubtedly, chargebacks were crucial, acting as a shield against fraud. Without the option of chargebacks, customers would have been highly reluctant to transact with businesses, and nothing would have stopped businesses from adding fraudulent charges or even denying products or services. Today, chargebacks are an accepted and unavoidable part that any business accepting credit or debit card payments must deal with.
Each chargeback carries a hefty fine for the business from the bank, leading to significant expenses. Furthermore, when a business has too many chargebacks compared with its total orders, then payment processors may stop processing the business’s payments altogether. At this point, businesses have their hands tied. There isn’t much they can do except dispute the chargebacks if they believe they are wrongfully or maliciously filed. However, banks generally tend to side with customers rather than vendors, and disputes take considerable time and effort to resolve.
Why Merchants Are Fighting Chargebacks
The importance of fighting chargebacks with cryptocurrency payments can be understood by understanding the problems chargebacks cause.
The Problem Of “Friendly Fraud”
When a bank issues a chargeback, it is attached to a reason code explaining the reason behind the chargeback. Studying chargeback reason codes has thrown up an interesting fact. “Friendly fraud” refers to the invalid usage of chargebacks arising from an error or misunderstanding on the cardholder’s part. In fact, data sourced from Chargebacks911 shows that six out of ten chargebacks are the result of friendly fraud.
Every transaction is subjected to a battery of fraud detection tools. However, some fraudulent transactions inevitably slip through. This is because fraudsters are very resourceful and always looking for new ways to steal funds. While technological and security advancements have mitigated the risk of fraud to a great extent, businesses and customers have to be wary of new types of fraud designed to bypass current security measures.
A business facing a chargeback can dispute it through the re-presentment process. The re-presentment process allows businesses to “represent” a particular transaction to the issuer along with documentation and evidence. Businesses still have to pay the transaction fee but can recover their revenue and discourage customers from engaging in fraud or friendly fraud in the future. The primary issue with contesting chargebacks is that the re-presentment success rates are abysmally low. In the Chargeback Field Report, surveyed businesses stated that they contested 43% of all chargebacks but had an agonizingly low success rate of just 12%.
Fighting Chargebacks With Cryptocurrency Payments
Many businesses have been reluctant to accept crypto payments, viewing them as too volatile and complicated. While this may be true, businesses are warming up to the idea, with the aim of fixing chargebacks with cryptocurrency payments. According to a report by Zippia, over 15,000 businesses worldwide accept crypto as payment. Accepting crypto payments has allowed businesses to achieve greater efficiency while giving customers more payment options.
Accepting cryptocurrency payments help businesses eliminate chargebacks entirely. When a payment is made using crypto, the transaction is immutable, which means no one can change or reverse it. As a result, merchants do not have to worry about accidental or malicious chargebacks and be confident that they will receive payment for their goods or services. Furthermore, crypto payments offer an unmatched level of security. A decentralized network of nodes verifies all transactions. This makes it impossible to manipulate transactions or let scammers falsify transactions.
Cryptocurrency payments are also quick, in addition to being highly efficient. The elimination of intermediaries from transactions means that no processing fees are required to be paid. This allows merchants to receive their payments quickly and, more importantly, not have to worry about chargebacks.
How SmartPay Can Help In Fighting Chargebacks
SmartPay is the latest offering from CoinSmart and helps businesses seamlessly accept crypto payments and convert them into fiat instantly. Furthermore, the platform gives businesses a guaranteed, locked-in exchange rate, meaning businesses do not have to worry about volatility while also accessing quick settlements at low fees. Through SmartPay, businesses can access an efficient and cost-effective method to issue invoices, collect customer payments, and pay suppliers. Businesses can also process pay-ins and pay-outs without any risk of chargebacks.
SmartPay is easy to use and can be integrated into e-commerce websites via APIs. The platform supports all major cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Tether (USDT), and several others. Furthermore, it also gives businesses several other advantages, such as a guaranteed exchange rate, instant access to funds, and seamless crypto payments.
Businesses are finally getting around to fixing chargebacks with cryptocurrency payments. Thanks to their security, finality, and efficiency, businesses do not have to worry about disputes, delayed payments, or chargebacks. With the world making a tectonic shift towards crypto and more and more users comfortable with making cryptocurrency payments, businesses must give their customers the option of making crypto payments. SmartPay helps businesses accept crypto payments seamlessly.If you found our article on fixing chargebacks with cryptocurrency payments helpful and wish to implement them for your business, you can visit SmartPay’s official website for more information.