5 Unbelievable Sources of Chargebacks
By Chris Alarie on Dec 16, 2020
Any business that accepts payment through payment cards is at risk of receiving chargebacks. Chargebacks can also originate from a wide variety of sources, within the general categories of criminal fraud, chargeback fraud, friendly fraud, merchant error, and miscellaneous.
While we have plenty of other content discussing the more common and predictable sources of chargebacks, that does not capture the full scope of how chargebacks affect merchants. This article discusses some uncommon, unbelievable, or otherwise unexpected but still significant sources of chargebacks.
EMV-Related Chargebacks in Bars
In late 2015, the four major credit card companies changed their chargeback dispute policies in an effort to induce more merchants to adopt point-of-sale (POS) technology that was compatible with payment cards that contained EMV chips. Essentially the card brands shifted liability in any chargeback dispute to the merchant for non-EMV POS transactions. If the merchant swiped a card rather than used a chip reader, they would effectively lose any chargeback dispute automatically.
In addition to the obvious issues of imposing additional operating costs on merchants by forcing them to purchase costly new POS technology, these policy changes have caused issues for the bar industry in particular. EMV technology does not comport as well as card swipes with an industry that relies on quick processing of payment and somewhat nonstandard payment procedures such as opening tabs and leaving tips. As a result, bars have been more reluctant than other sorts of businesses to adopt EMV readers. Bars are also at a particularly high risk for chargebacks. These factors have combined to lead to a pronounced increase in chargeback costs for the bar industry over the last 5 years.
Charity & Nonprofit Chargebacks
It is hard to imagine the circumstance that would lead to a charity or bonafide nonprofit having to deal with chargebacks. After all, it seems unlikely that the conventional motivations behind fraud—whether of the criminal, chargeback, or friendly variety—would result in a payment to a charity. But it does happen. In fact, fundraising/charity platform GoFundMe even has a page on their website explaining how campaigns should handle chargebacks. The risks of chargebacks extend to any entity that accepts payment cards, including charities and nonprofits alongside more conventional merchants.
Bella Thorne OnlyFans Controversy
The payment issues for adult industries are myriad and complex. A high profile incident from this past summer illustrates how adult entertainers and associated businesses face particularly high risks of chargebacks.
OnlyFans is a subscription-based service that allows creators to share content directly with their fans for a fee. While not exclusively used for adult content, it is widely used by adult entertainers and sex workers as a medium for their content and a source of income. In August 2020, American actress Bella Thorne announced that she had created an OnlyFans account. Her account immediately became the most popular account on the site, earning her $1 million in her first 24 hours and $2 million in her first week.
Thorne’s entry into OnlyFans was immediately controversial, with some sex workers questioning her motives and accusing her of “digital gentrification.” But the situation became even more complicated when Thorne promised to post a nude photo for fans who subscribed at the $200 per month tier. When she backed down from this promise and instead sent lingerie photos, angry fans responded with a slew of chargebacks. This led OnlyFans to institute platform-wide changes to its payment structures, adding further complications to an already precarious industry during an economically ruinous pandemic.
Steve Wozniak Defrauded in Cryptocurrency Transaction
Several years ago, Apple Computers co-founder and tech industry icon Steve Wozniak had an unfortunate experience that illustrates the chargeback risks associated with cryptocurrency as well as the fact that nobody, not even wealthy celebrities, are immune to chargebacks. Wozniak had invested in cryptocurrency, purchasing several bitcoins. When he attempted to sell the bitcoins online, the purchaser paid via credit card. The purchaser then filed a chargeback, depriving Wozniak of both the bitcoins and the payment. Moreover, Wozniak later discovered that it had been a stolen credit card number. Fraud and chargebacks, like a hand in a glove.
Twitch Streamers Face Chargebacks
One of the newer sources of income that has been developed in recent years is live-streaming. While live-streamers perform a number of different activities, one of the most popular and lucrative are professional gamers who stream themselves playing video games on platforms such as Twitch. Many streamers make their income from some combination of advertising revenue, affiliate programs, merchandise sales, and fan subscriptions. These last two income sources, in particular, carry significant risks of chargebacks.
Many streamers are relatively inexperienced with running these sorts of business, having found themselves in careers because of their skills as gamers, entertainers, and promoters. As a result, they are often unprepared for the sorts of chargeback-related difficulties that more experienced merchants know well. One company, Streamlab, that caters to streamers has a FAQ section about chargebacks but, in general, the streaming community would be well served by availing themselves of chargeback management tools and services.
What Can You Do to Avoid Chargebacks?
Chargebacks are an inevitable part of any business that conducts transactions with payment cards, whether online or in person, card-present or CNP, large or small scale, notorious or anonymous. Chargebacks can originate from a variety of sources and cause all manner of complications for businesses and proprietors. It is imperative that merchants, streamers, adult entertainers, bar owners, Wozniaks, and anybody else who accepts payment cards inform themselves about the risks of chargebacks and make use of the variety of tools and methods to try to prevent them.
The right chargeback management solution will provide you with the tools, information and insights you need to implement a solid chargeback management strategy.
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