Chargebacks are designed to protect consumers against suspicious transactions, but they also have serious financial ramifications for e-commerce merchants. These chargebacks, which let credit card issuers return funds to customers who dispute a transaction’s legitimacy, can have even longer-lasting effects on an e-commerce merchant’s bottom line and reputation. And what makes chargebacks even more dangerous is the chargeback lag – the 45 days between the time a chargeback occurs and the date the merchant is notified. This delay creates numerous problems for merchants, making it even more important to minimize chargebacks from occurring in the first place.
How the Lag in Chargeback Fees Impacts E-Commerce Businesses
But that’s just the beginning. As the chargeback proceeds through its lifecycle, businesses can find themselves dealing with the fallout — like distorted financials, unplanned losses and masked fraud attacks — months later.
This lag means that revenue earned today can’t be confidently (and accurately) recorded until after the chargeback window has passed; it also means that financials and actual performance can be distorted for months as merchants navigate the accounting of chargeback losses.
But beyond increasing financial reporting inefficiencies, chargeback lags:
Mask the source of fraud. Because of the delay, merchants may not realize they’ve become a fraud attack victim until it’s too late. This makes it virtually impossible to identify how the fraud occurred, respond to that instance of fraud and prevent future attacks.
Prevent recourse. Because merchants aren’t notified of chargebacks until months after they happen, they can’t promptly respond to the claim and must absorb losses that come long after the original transactions.
Are masked by high sales. During times of high sales, such as during the holidays, chargeback rates may appear low. But when sales level off, chargeback rates seem to climb because of the chargeback lag.
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