It’s crucial to limit the number of chargebacks that occur on your merchant account to the smallest number possible. Here are a few of the reasons why chargebacks are so bad for your business’s merchant account:
Penalties and fees: When you experience a chargeback, you’ll have to pay the bank more than the amount being returned to the customer and an extra bank-issued penalty on top of that. This extra fee can be detrimental to any business’s overhead costs, especially small businesses.
A higher chargeback-to-sales ratio: The banks will know how many chargebacks your merchant account has compared to the number of regular, completed sales you make. If the ratio gets too high, the bank could label you as a “high-risk” business. In that case, you may experience some consequences to your merchant account, including higher bank costs and even losing your merchant account.
Increased bank costs per transaction: Once the bank deems you “high risk,” it can be hard to get your good reputation back. The bank will start treating you differently when you use bank cards or conduct e-commerce transactions. In fact, you may have to start paying the bank more money per transaction for use of their bank card services.
A loss of your merchant account: In the worst-case scenario, you could completely lose access to your merchant account. This usually occurs once the bank views you as too high-risk to work with any longer, like if your chargeback to sale ratio gets too high. When that happens, you’ll lose the ability to use debit or credit cards at your store or conduct e-commerce.