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When should a merchant consider buying chargeback insurance, also known as a chargeback warranty? It might seem obvious to a Merchant that chargeback insurance is an obvious and necessary protection for their business. Wine franchise owners and retail store owners alike invest in plans. Chargeback insurance only covers chargebacks that are fraudulent, so many would correctly assume that chargeback insurance would be a waste of money for most merchants. However, this might be untrue if you run an entirely online business or a business that’s main revenue comes from shipping goods through the mail. This post will detail the different situations where a merchant might find it beneficial to defend their business with chargeback insurance.
Understand Friendly Fraud
Does your business experience a large amount of friendly fraud? Friendly fraud is the practice of buying an item from a store using a credit card, and later calling the bank to cancel the transaction, without returning the item. The bank performs a chargeback ,and you as a store owner are left without the money owed to you by the person who bought your goods, with no recourse left to except for arguing the chargeback with the bank. If you wish to prevent fraud of this nature then chargeback insurance might interest. However, chargeback insurance doesn’t usually deliver a high return on investment necessary to justify its cost in brick and mortor stores, as they do not usually experience enough friendly fraud to see the benefits of chargeback insurance.
Consider Your Store Type
If you run an entirely online store you might be more familiar with friendly fraud chargebacks and how negatively they can affect your bottom line. These are not the only businesses that are susceptible to fraudulent chargebacks. However, any business that accepts credit cards as payment is technically susceptible to chargebacks. Many businesses who regularly deal with chargeback fraud are those which rely heavily on the internet and the shipping of goods to their customers. If you run this type of business and are noticing a recent increase in the number of chargebacks you are receiving, at no fault of your own, you should look into buying chargeback insurance.
Regard Product Values
Many times, the cost of chargeback insurance is more expensive than the fraudulent chargebacks themselves. However, if you are a merchant who sells items worth a few hundred dollars or more, it is in your best interest to get chargeback insurance. You need more than just product insurance to ensure that you do not lose a hefty chunk of your anticipated profits. The benefit of insurance on such expensive times is more than beneficial enough to justify the added expenditure, even if you only use it a few times a year.
Coverage From Fraudulent Activity
If none of the previous points seem to fit you or your business, you might not need Chargeback insurance. However if you are truly worried about fraudulent chargebacks, and you want to stop the problem before it starts, you can try talking to your merchant account service about chargeback insurance. They may offer the service themselves, and they may offer you more services that average chargeback insurance does not.
Offer A Chargeback Guarantee
If you want your business to run efficiently and smoothly you may want to simply offer a chargeback guarantee. Some fraud prevention services offer the user the option to give their customers a chargeback guarantee. This is effective because it allows the business owner to predict losses that might otherwise appear randomly, even with regular chargeback insurance, and make your business sustainable. Through the use of a chargeback guarantee merchants can manage their business more effectively than if they decided to go without chargeback insurance.
Prevent Chargebacks Overall
Working with an insurance carrier, you can still take several steps to stop them at the source. You can work with your insurance company to determine where the majority of fraudulent activity is coming from. This would result in a process to mitigate requests. Furthermore, you can use third party tools to create alerts, updates and notifications to keep your business running smoothly. This would also become part of your overall fraud prevention efforts. With the right insurance partner, you can take a strong stance of stopping fraudulent chardbacks at the source.
How do you know that your business needs chargeback insurance? If your business experiences large amounts of friendly fraud, you should buy chargeback insurance. If your business is largely online you should look into chargeback insurance more seriously than a brick and mortar store. If you sell expensive or luxury items, you will see a return on investment with your chargeback insurance. These are just some of the instances in which it is beneficial for a merchant to either purchase or look into chargeback insurance.
