By Chris O'Donnell
Instabill Corp.
Mentioning the term "chargebacks" used to make merchants shrug their shoulders and blurt one of the following clichés: chargebacks happen; it's the cost of doing business; you need to take the bad with the good. Today, that indifference is quickly turning into panic. It is likely many merchants will soon take an unwanted crash course in dealing with chargebacks.
In April of 2015, Visa disclosed it was applying its chargeback threshold (basically, its tolerance level for such) for U.S. transactions – 1 percent of sales and/or 100 chargebacks per month – across the board for international transactions, as well. International transactions had been 2 percent of sales and/or 200 chargebacks per month. Additionally, Visa's new inter-regional fraud level increased from $25,000 per month to $75,000 per month, while its fraud-to-sales threshold dropped to 1 percent.
Merchants who near 0.75 percent in chargebacks or 75 chargebacks in a month will receive a warning from Visa. The same is true for those nearing the fraud-to-sales threshold. Exceeding either limit enrolls merchants in Visa's chargeback and fraud monitoring program through which Visa works with the merchant to curb chargeback and fraud rates. Continued unacceptable levels of chargebacks and fraud will result in the loss of a merchant account.
The move is forcing merchants, particularly high-risk merchants, to reconsider their chargeback mitigation methods or lack thereof. "It's been a false threshold," said Monica Eaton-Cardone, Chief Operating Officer and co-founder of Chargebacks911.com, which advises merchants and businesses on chargeback management. "It's kind of been the wild, wild west in some respect."
Chargeback management firms and companies didn't exist when Eaton-Cardone and her husband, Gary Cardone, Chargebacks911 Chief Executive Officer, established the company in 2009. Now it appears this young niche industry is primed to receive a boost.
Eaton-Cardone isn't cheering Visa's new ruling, even though Chargebacks911.com stands to profit significantly. Ten years ago she was a software and technical support merchant who suffered badly from excessive chargebacks. "There were times I had wished I could dial 911 for help," she said. Hence, the birth of her company. She saw an untapped yet badly needed market. Eaton-Cardone agrees with Visa's ruling – to a point.
"Three to five years ago, if you were breaking the threshold, you were around 3 to 4 percent," she said. "Now Visa has come out and said at 1 percent you've crossed the line and at ¾ percent, they're giving you a warning. That's only logical if you've established a threshold of 1 percent. I think Visa clearly recognizes that the appetite for fraud cannot increase. Visa needs to do something fast. There is a growing epidemic of friendly fraud. There is also affiliate fraud and compliance fraud."
Eaton-Cardone feels the problem is the lack of education and support for merchants. She and her colleagues are fielding inquiries from merchants of all genres – POS and e-commerce – who, frankly, do not know how to handle chargebacks. "There is no such thing as getting a merchant account and getting an education in chargebacks," she said. "Merchants think their core focus is getting customers."
Businesses of all types will be compelled to place more emphasis on customer support and risk management, perhaps even creating departments where none previously existed. While this is a realistic option for large retailers, it can be a pipe dream for small and medium enterprises.
Scott Stone, Chief Marketing Officer at Chargeback.com, said his company has experienced significant growth, but believes it is because of a number of factors, possibly Visa's ruling among them. "We've seen aggressive growth, and I think it's a combination of things," he said. "I'm not sure how much is attributed to [Visa's ruling]."
Khalid El-Awady, President of Chargeback.com, said, "The awareness of chargebacks is increasing. We're seeing strong growth on many fronts on chargebacks. I think that [chargebacks are] moving up the priority list for most merchants."
It is easy for a credit card holder to file a chargeback. It is instinctual even. What merchants need to figure out is how to get through to the consumer that a refund is always the better option than filing a chargeback, the lesser of two evils.
"It's up to the merchants to get right out in front of that," Stone said. "There are ways to handle returns and refunds."
A number of industries will be directly affected by the Visa ruling. Eaton-Cardone said her company has already fielded inquiries from travel-related merchants, who are expected to be affected. Consumers pay for travel plans months in advance, and often cancel, erroneously thinking a call to their credit card issuer is the logical step. Additionally, it is an industry with high-ticket items, which often evokes buyer's remorse leading to a consumer filing a chargeback, not a refund.
Experts also feel industries such as nutraceuticals and some subscription-based models will directly be affected. Visa's change will also cause companies that offer free trials to think twice. "This is affecting all merchants, not just CNP merchants," Eaton-Cardone said. "We're actually seeing POS merchants who are concerned."
Eaton-Cardone and her staff frequently hear how merchants cannot afford to hire a chargeback management company. Too expensive, merchants say. It will kill my bottom line. Naturally, she begs to differ. She encourages merchants to regard hiring a firm that manages chargebacks as an investment – one that is worthwhile and, in light of Visa's new chargeback and fraud monitoring thresholds, necessary.
"It's not just about mitigating chargebacks," she said. "It requires an expert in chargeback management. [Merchants] are going to win back revenue, and they're going to gain intelligence on why a chargeback was filed if they partner with the right company."
The time is now for payment professionals to evaluate what kind of chargeback education and assistance they provide to their merchant clients and to strengthen their efforts. This could mean partnering with a chargeback management company or, for those with the resources, thoroughly training an in-house team dedicated to educating and assisting merchants with all aspects of chargeback prevention and mitigation. 
Chris O'Donnell is a Senior Copywriter for the Instabill Corp. in Portsmouth, N.H. Instabill is a full service provider of merchant accounts to e-commerce, MO/TO and POS businesses. A resident of coastal New England, O'Donnell is also a contributor to The Daily News (Newburyport, Mass.) and Newburyport magazine.
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