Chargebacks: The Merchant’s Pain — and How Crypto Payment Gateways Are Helping
Chargebacks are basically debit or credit card transactions that are reversed by the cardholders’ bank after the purchaser disputes a charge on their account. It is also known as a payment dispute and was regulated by governments as a consumer-protection mechanism against fraudulent charges back in the 70s.
To illustrate, let’s assume that a cardholder finds a transaction on his card statement that he did not authorise, or he made a purchase but the item or service was not up to his expectations. This cardholder is allowed to contact his card issuing bank and request his money back. As much as this is helping build customer confidence in using the system, in reality, it hurts merchants or businesses and is a real pain point that needs to be addressed.
Main Issue With Chargebacks
There can be various reasons for a chargeback, often the reasons are genuine and related to system errors, but unfortunately, not all chargebacks are genuine. Chargeback frauds are one of the most common and highest volumes of frauds for online merchants. Some statistics:
💀 75% of eCommerce businesses saw an increase in fraud attempts in 2021
💀 From 2020 to 2021, fraud risk more than doubled for retail and social networking brands. Fraud risk more than tripled primarily for eCommerce brands and quadrupled for SaaS, gaming, and streaming brands
💀 By 2030, total payment card volume is expected to top USD 79 trillion. Of that amount, an estimated USD 49.32 billion will be lost to criminal fraud
💀 eCommerce losses resulting from criminal fraud were as high as USD 20 billion globally in 2021
Clearly, chargebacks are a serious pain point for merchants which could lead to serious negative outcomes for them.
How Chargebacks Negatively Affect Businesses
Every time a chargeback is reported, the merchant is hit with a fee (which can range from USD 20 to USD 100 depending on the bank) and will still need to pay the fee if the customer later cancels the chargeback. Customers are also unlikely to return the merchandise involved which results in the merchants losing the revenue from the sales, and to add on to that related costs such as shipping costs and transaction processing fees are not refunded after a chargeback.
Not only that, but card networks impose punishing fines against the business if monthly chargeback rates exceed a predetermined threshold. Worse still, if the merchant’s chargeback rate remains above the acceptable threshold, there is a chance that the merchant’s bank would freeze their funds and terminate their account. Some merchants have been blacklisted due to this and this poses other problems for the business to continue its operations.
How Crypto Payment Gateways Are Resolving This
Due to the nature of transactions carried out using cryptocurrencies on the blockchain, chargeback occurrences are a lot less or non-existent. This is because crypto transactions and payments are irreversible and are impossible to recover without the approval of the recipient. Merchants who receive the crypto payments are automatically the owners of the funds and no one can take the newly received crypto funds from them.
There are no authorities (such as card-issuing banks) that can order the transactions to be reversed or canceled. Hence there is no way to make a chargeback happen on the blockchain. However, merchants have the full power to give the refund directly back to customers after assessing the refund applications from the customers, by conducting separate transactions of sending the funds to the customers.
Crypto payment gateways such as Paywong empower merchants to take control of the situation and give them freedom from fraud, which is a crippling issue for online merchants. Online businesses no longer have to worry about fraudulent transactions and just need to deal with genuine refund cases directly with customers without any interference from any third party.
In addition to avoidance of fraud, crypto payment gateways are a lot more efficient than traditional payment gateways as transactions are processed within seconds (not hours or days as with fiat payment gateways) even when the transactions occur across the globe. This is the reason why crypto acceptance more than doubled among merchants between 2019 and 2021 and continues to rise.
If you are an online merchant, perhaps it’s time to say no to fraud and payment inefficiency and start using crypto payment gateways.
With Paywong, anyone can accept crypto payments, including stablecoins, from anywhere in the world with low transaction fees, with or without a website. The startup is also working with a third-party off-ramp solution to allow its users to convert crypto to fiat in real-time. Paywong is a non-custodial crypto payment gateway that provides merchant services for businesses that cater to all kinds of customers. In addition, Paywong is also useful for individuals who are working as freelancers and want to get paid for their services in crypto via Paywong’s crypto invoicing service.
Paywong has launched its payment gateway, which includes an intuitive dashboard for managing user funds, e-commerce integrations, and an invoicing system that generates a payment link for anyone can share. Simply book a demo here to find out more, and you’ll be on your way to accepting crypto as payment from your customers in no time.
About The Company
Paywong is a product of Walawong Solutions Pte Ltd — a Web3 startup based in Singapore. We are on a mission to simplify crypto payments for businesses by leveraging the power of blockchain technology.