A primary concern for credit card associations, run by VISA & MASTERCARD, are to give consumers the peace of mind to use credit. They want people getting credit cards and spending money on them (that's how they make money).
Consumers, on the other hand, need to feel assured that they are safe to have a card that allows them to spend more money than they actually have. This can be a frightening concept for consumers with all of the fraud, identity theft, stolen cards, etc. that occurs daily.
For this reason, the credit card associations know they need to make consumers feel at-ease using credit, and so their strategy is to allow credit card holders the ability to dispute transactions.
2 primary reasons why consumers dispute transactions:
To give consumers peace of mind the credit card associations allow card users to dispute any transaction up to 6 months from the final point of delivery - and in some cases that can be extended to 12 or even 18 months.
In the case of fraud, the costs are extremely high. In 2018, $24.26 Billion was lost due to payment card fraud worldwide.
And if a consumer is not satisfied with a product they have the ability to file a dispute, which may result in the transaction being charged back to the business, called a chargeback, which come with additional fees. Even if businesses offer refunds many consumers will simply dispute transactions (resulting in chargebacks) out of pure convenience. In fact, 81% of consumers freely admit to filing a chargeback out of simple convenience.
The credit card associations (VISA/MASTER) have no desire to lose this much money refunding consumers for fraud, disputes, chargebacks, etc. and they don't. They pass the risk on.
The institution that actually has to give back the consumer's money is not the credit card association - it's the business.
But what if the business is no longer operational? After all, roughly 50%of small businesses fail within five years. Additionally, over 20,000 businesses file bankruptcy every year, so if a consumer can dispute a transaction up to 6, 12, or even 18 months after it has taken place it is not uncommon for the business to no longer be around by then.
In this case, the institution who is responsible for giving back the money to the consumer is that (now gone) business's merchant account provider.
A merchant account provider's primary concern, when offering the ability to businesses to accept credit card payments, is that the business will sell a lot of products and then disappear (or go out of business) before the sales even start to get disputed - leaving them on the hook to refund all of that money back to the customers of the business which no longer exists. Which could be thousands, hundreds of thousands, or even millions of dollars worth of refunds.
Because they assume this risk, merchant account provider charge fees for their services in conjunction with the associated amount of risk they will be taking on by providing a business the ability to accept credit card payments.
Some businesses are inherently more risky than others, and for this reason merchant account providers have different methods of pricing, fees, etc. associated with the various types of businesses they provide merchant services to.
Read more about high-risk
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