How to Manage Chargebacks for High-Risk Accounts

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In the payment processing industry, high-risk accounts are notorious for having a higher chargeback rate than other types of accounts. Chargebacks are costly and can jeopardize the status of your merchant account. How they affect you depends on the category a payment processor has put you in. It’s always best to avoid a high chargeback merchant account, but, if you’re in a higher risk industry, managing chargebacks requires understanding a few different principles.

What Is a High-Risk Merchant Account?

A high-risk business is one with a chargeback rate of over 1%. Other factors include a high rate of fraud or loss related to their product or niche served. High-risk merchants are often those that sell health and beauty products, gambling, travel, recurring subscriptions, firearms, digital media, pharmaceuticals, or consumables.

What Is a Chargeback?

A chargeback is the reversal of payment by a customer through their card-issuing bank. It essentially gives them their money back. This differs from a refund, in which the merchant returns the cardholder’s money directly without involving the bank. Excessive chargebacks can get your merchant account terminated.

The process of a chargeback is initiated when a customer contacts the card-issuing bank to dispute a transaction. The customer’s bank then reaches out to the merchant’s bank or payment services provider. Next, a bank can decide whether the customer will get their money back or if the purchase was legit.

If so, then the buyer can dispute the purchase again, which triggers arbitration. In this case, the card-issuing company will review the evidence from both parties and decide what to do about the chargeback. Merchants can take the matter to court if they lose the case.

Why Do Chargebacks Happen?

Chargebacks can be managed, or even prevented, if you understand how they happen in the first place. Some of the most common reasons include:

  • The product is damaged, of poor quality, or was purchased in error.
  • Delivery took too long, the buyer lost patience, or the shipment was lost.
  • The customer’s request for a refund has failed.
  • A consumer forgets about a subscription and doesn’t want to be charged.
  • The buyer doesn’t recall the purchase; the transaction may have been fraudulent.
  • The customer regrets making the purchase.
  • The customer intentionally files for a chargeback (friendly fraud).

How Chargebacks Affect Your High-Risk Merchant Account

High-risk merchants are charged higher fees per transaction overall, and chargeback fees can be even more damaging. A chargeback may cost your business three times more than the customer’s transaction. Payment processors also set a chargeback threshold. If you exceed that, you could lose your merchant account, face more expensive fees if opening another one, or be blacklisted by card networks.

However, if you do have chargebacks, all is not lost. Here is how you can protect yourself going forward.


Try to prevent chargebacks by:

  • Ensuring your merchant name is clearly identified on your website.
  • Verifying that products/services are properly represented on your website.
  • Making improvements to your customer service and addressing aggrieved customers appropriately.
  • Getting all transactions, signatures, and verifications in writing.
  • Keeping all receipts, invoices, and purchase-related documents, and emailing a receipt to the customer.
  • Using password and phone authentication to reduce the risk of fraudulent transactions.
  • Establishing an approximate time of delivery.

Fraud Protection

High-risk merchants that sell high-value products are often targeted by cybercriminals. It’s important to beware of the signs of a stolen credit card being used for profit. This includes unusual sales activity of event tickets, high-end clothing, or jewelry, which can be sold quickly on a secondary market. Strongly consider updating your fraud prevention strategies if you’re getting a lot of fraud-related chargebacks.


Sometimes, a chargeback is a legitimate occurrence. Good management practices include having an understandable return/refund policy and responsive customer service. Also, use the security code on the back of a credit/debit card to verify identity. Other useful tips include monitoring subscriptions that get canceled and requiring a proof of delivery from the delivery service provider.

Open a Dispute

No customer is guaranteed to win a chargeback claim. While it may not go in your favor, disputing a claim can prevent a chargeback. To file a dispute, reach out to the customer to resolve the issue, in case there was a misunderstanding. Also, the more concise your records are, the more likely you can address the matter legally if attempts to resolve it directly fail.

Find a High-Risk Merchant Account Payment Processor

If your business is in a high risk category, you can find a payment processor that will accept a high chargeback merchant account. At Adept Payments, we offer a lowest rate guarantee, the latest payment technologies, and outstanding customer service so you can grow your business and continue accepting credit card transactions. Call us at 888-732-3838 to learn more.

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