Chargeback protection and chargeback insurance are not the same. Chargeback protection typically covers only a portion of potential losses, and some vendors cover nothing, leaving merchants exposed to fees, friendly fraud, and reputation damage. Chargeback insurance offers a 100% guarantee: if the fraud partner approves a transaction that turns out fraudulent and results in a chargeback, the partner pays the full cost. Knowing the difference helps small businesses choose the right level of coverage.
Good news for small business e-commerce website owners trying to protect their profits: There are plenty of resources and services available to help you with fraud protection. The bad news is that it can be tough to clearly evaluate all of these options.
One of the keys to finding the right fraud solution for your business is to understand how the solutions vary in the protection they offer, so that you can determine the best fit for your needs.
Some partners offer chargeback protection. Others feature chargeback insurance. How are they different? What level of protection do you really need?
Let’s take a quick look at what both options offer.
Finding a fraud solution provider is not a terribly difficult task these days. As instances of fraud have steadily grown over the past several years, so too has the number of companies offering to help businesses deal with the persistent problem of chargebacks.
What can be difficult, however, is finding a chargeback protection program that delivers what you might need as a small business owner.
Ultimately, it’s a matter of how much your vendor is willing to guarantee.
Typically, a vendor offering chargeback protection will cover a portion of the potential losses a business might incur due to fraudulent transactions. Sometimes, vendors won’t cover any losses – in which case you’ll be responsible for any and all chargebacks, regardless of why the chargeback occurred. And in some circumstances, you may even face additional penalties from your vendor.
All of this means that although your fraud protection vendor may offer tools or solutions to help you monitor transactions and identify fraud, you may in fact have little to no actual coverage in case things go wrong.
Even if your vendor offers chargeback protection, it’s typically limited in scope. It’s likely that you’ll still exposed to substantial risk, including direct risks such as chargeback scams (i.e., “friendly fraud”) in which consumers claim purchases were undelivered, and those indirect:
True chargeback insurance, on the other hand, offers more advanced and secure protection for business owners. In fact, only a handful of providers offer this option (Clearsale does – and has been for more than ten years).
Chargeback insurance provides a 100% guarantee that covers the merchant if the fraud solution partner approves a transaction that turns out to be fraudulent and results in a chargeback. Should this happen, the fraud partner will pay the entire cost of the chargeback.
On the surface, the difference between chargeback protection and chargeback insurance may not seem big. But with the trend in friendly fraud and chargeback fees ranging upwards as high as $100 per transaction – not to mention the other hidden costs to your business described above – the true expense of fraud can quickly add up for small businesses.
A good chargeback insurance program works just like any other type of insurance by covering the losses the insured party incurs. Ultimately, it’s about peace of mind – knowing that your business is covered no matter what happens.
Limiting your exposure to chargebacks is an essential step toward safeguarding your business and establishing your trustworthiness with consumers. Of course, chargeback insurance should be just one part of a more comprehensive fraud protection and prevention plan.
Contact contact@clear.sale today to learn how seriously we take fraud protection, and how we can help you develop a plan for your small business to help you rest a little bit easier when it comes to the threat of chargebacks.
Chargeback protection typically covers only a portion of the losses a business might incur from fraudulent transactions. Some vendors cover no losses at all, leaving the merchant responsible for chargebacks, and in some cases the merchant may even face additional penalties from the vendor.
Chargeback insurance provides a 100% guarantee covering the merchant if the fraud solution partner approves a transaction that turns out to be fraudulent and results in a chargeback. In that case the fraud partner pays the entire cost of the chargeback, like any other insurance covering the insured party's losses.
Chargeback protection is usually limited in scope and may leave the merchant substantially exposed, while chargeback insurance fully guarantees coverage for approved transactions that turn out fraudulent. The difference can be significant given friendly fraud and chargeback fees that can reach as high as $100 per transaction.
Even with chargeback protection, merchants can remain exposed to friendly fraud, chargeback fees for approved transactions that were fraudulent, potential increases in payment processing fees from higher chargeback ratios, and reputation damage from negative customer experiences.
Yes. The article states that only a handful of providers offer true chargeback insurance, and ClearSale is one of them and has offered it for more than ten years, providing a 100% guarantee on approved transactions that turn out to be fraudulent.
No. Chargeback insurance should be one part of a more comprehensive fraud protection and prevention plan. Limiting exposure to chargebacks safeguards the business and builds consumer trust, but it works best alongside broader fraud prevention measures.