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Gambling Chargebacks: What Are the Consequences of Too Many?

Woman with playing cards

Chargebacks have been a nuisance in the gambling industry (in every high-risk trade, really) for as long as credit card processing has been a thing.

And while the point of a chargeback is to protect the customer, over 80% of consumers have admitted to filing a chargeback purely out of convenience. Plus, studies have also shown that customers who have issued a chargeback once are 9x more likely to try it again within just two months. 

Yikes.

This is likely why it comes as no surprise that high chargeback rates have remained a huge issue for iGaming businesses—an issue that is exacerbated by the competitive nature of the sector and service itself (as the entertainment industry is, in most cases, full of rivalries). 

While they might just be something you “have to deal with,” you shouldn’t overlook the long-term consequences of high chargeback rates as a gambling merchant.

That’s why we’ve taken a closer look at what high chargeback rates can lead to and gathered some practical tips from FastoPayment’s high-risk experts for merchants facing these struggles.

What is a Gambling Chargeback?

A chargeback is what happens whenever a purchase is disputed directly with a card-issuing bank, which leads to a forced refund.

In the gambling sector, chargebacks are typically the consequence of either one of two main issues:

  • Unauthorized transactions
  • Customer dissatisfaction

Why is it so common in online betting, though? Simple: people don’t like to lose, and when they lose bets, they get angry. That anger (or general dissatisfaction, rather) leads them to request a refund they feel entitled to.

It’s not always due to anger over losing money, though. Oftentimes, the issue may come from simple misunderstandings about bonus systems, issues with payout times, or fraudulent activity.

The latter, also known as “friendly fraud,” is what occurs when a chargeback is issued on a legitimate transaction and claimed as fraud in the hopes of getting a full refund on said payment.

So, it’s a very case-by-case scenario, even though the outcome remains the same.

That’s why it’s so important to understand the different causes of chargebacks so you can learn to prevent your chargeback rates from skyrocketing and keep your business in good standing.

A scammer guy in front of a laptop smiling as he just took money from an account. Show some credit cards in the air around him

What Are the Consequences of Too Many Gambling Chargebacks?

While a few chargebacks here and there aren’t necessarily something to worry about, a few too many could turn into a huge issue.

What should you be aiming for? A healthy chargeback rate of a high-risk business is 0.75%.

If you notice that rate slowly creeping higher, it’s time to pause and see what’s happening. If you don’t, you risk running into one of these issues…

Direct Financial Losses & Increased Transactional Fees

Excessive chargebacks can leave a significant mark on a business’s finances.

That’s because, when a chargeback goes through, the merchant loses the revenue that would’ve been made on that purchase, on top of additional costs that come with issuing a forced refund.

The added fees are usually charged by acquiring banks to cover the refund charges on their end and “punish” the merchant (with the hopes of incentivizing you to fix whatever issue caused the chargeback in the first place).

The increased expenses don’t stop there, though. With a higher-than-average chargeback rate, it’s also likely you’ll be facing higher processing fees on all transactions, from acquirers and processors alike.

💡 Doesn’t sound like a huge deal? Being in a high-risk industry like gambling means you’re walking a tightrope already. Now, combine that with a high chargeback rate, and you’ll be considered an even bigger liability than your competitor with less chargebacks. This puts you at a huge disadvantage when trying to access great rates for high-risk merchant accounts and other services—all of which impact your bottom line and ability to thrive as a profitable business. 

Doesn’t sound like too big of an issue since high-risk is high-risk either way , right?

Wrong. If you’re not careful, this could lead to  a processing fee of 2.5% quickly turning into 3.5% instead. Again, while it might not seem like a huge amount, in reality, it could lead to a significant loss in profits.

Trust Issues with Payment Providers & Customers

The increased processing costs that come with high chargeback rates go hand-in-hand with trust issues with payment providers and customers.

The reason for that is quite simple: a high chargeback rate, in most cases, indicates a poorly managed business in the eyes of processors. The same goes for customers.

If a lot of your customers have felt the need (or that’s what it at least seems like) to file a chargeback, then why would new clients put their money and trust in your products or services?

A lot of chargebacks could also result in being put in a monitoring program. The Global Merchant Monitoring Program was designed by Visa and operates on a monthly basis to help merchants with very high chargeback rates operate using better business practices to lower the rates. 

In extreme cases, excessive chargebacks can also end in account termination and merchants losing their privileges to process transactions altogether.

As we know, using services like PayPal, Venmo, and Stripe doesn’t work for high-risk merchants. So if you can’t work with high-risk processors, you could end up being entirely out of luck.

Costly Disruptions & Compliance or Legal Issues

As if all of the above wasn’t bad enough, the managerial aspect of resolving a chargeback is another huge burden (that takes time and money to solve).

Firstly, it requires you to be quick-thinking. This means that you need to work quickly to catch onto a filed chargeback as soon as it’s initiated since it can be stopped before it actually goes through.

To do that, though, you will need to collect evidence, deal with the documentation, and communicate with your processor or acquirer, all of which requires extra time and energy. 

If, however, the claim is approved by your client’s card-issuing bank, it’s too late and you’ll have to deal with the consequences. 

If that wasn’t complicated enough, add the scrutiny of the trade and regulatory requirements to the mix, and you’ll have a lot to figure out.

While this all means you will have to take time and effort to resolve these issues, the consequences are far worse.

The gambling industry has always been known for its dynamic regulatory environment, and failing to comply with these standards can result in hefty fines or revoked rights to process payments.

💡 Our payment experts encourage merchants in the gambling sector to carry out regular audits and reviews, keep their staff up to date on the changing regulatory standards, and work with an industry experts to guarantee compliance.

A guy in front of a laptop plays a casino game with headphones

So, Is it Possible to Have Too Many Gambling Chargebacks?

The short answer is, yes, it definitely is possible to have too many gambling chargebacks.

As mentioned, once your chargeback rate goes above 0.75%, it will be considered high and will likely lead to some (or all) of the consequences listed above.

Luckily, though, it is possible to recover from that and prevent it from reaching the threshold entirely.

Below, our FastoPayments team has listed a few tips and tricks on how to keep your business in good standing when it comes to chargebacks. 

How to Prevent Gambling Chargebacks

Catching potential chargeback cases before they escalate is the most effective way of keeping your rate at a healthy level. 

To do that, you really need to practice ethicality, first and foremost. By operating lawfully (obviously) and transparently in your business endeavors, you’ll likely have fewer dissatisfied customers to begin with.

Another way to prevent gambling chargebacks is to make sure your clients know what to expect and how to manage a purchase they’re not pleased with. You can do this by implementing clear refund policies, along with terms of use, in a designated spot on your site. 

Additionally, it’s important to take a proactive approach by practicing clear communication with the customer and your processor, utilizing sturdy prevention tools, and offering high-quality customer support.

These are all essential steps most gambling merchants can take to create a reliable environment for all parties involved and reduce the likelihood of potential chargeback cases from the very root.

Other tips include…

Use Advanced Security Tools

Nowadays, several tools are available that help combat chargebacks and protect against fraud. Each has its own purpose but is mostly designed for businesses at risk. 

Some of the tools intended for a safer experience include:

  • AVS (Address Verification Systems),
  • CVV verification
  • 3D Secure protocol

AVS helps verify a client’s identity to decrease the risk of identity theft and unauthorized transactions by comparing the billing information to the address on file with the customer’s issuing bank.

The main purpose of CVV is to add a layer of security on all card-not-present transactions by requiring the security code on the physical card when making an online transaction.

3D Secure is imposed by card schemes that redirects the customer making a purchase to their bank account for an extra verification before finishing the payment

Monitor Transactions in Real-Time

Another great way to prevent excessive chargebacks is to monitor all transactions in real-time.

Early detection and intervention in these cases can give you a chance to resolve the dispute before it goes through as a chargeback

💡 At FastoPayments, we offer our merchants human monitoring for the first few months to analyze data better, which then gets taken over by AI-pwowered tools that surpass human capabilities (often necessary given the volume of transactions most gambling sites face). 

Offer Responsive Customer Support

By offering quality assistance to your clients and addressing concerns in a timely manner, you’ll be able to resolve disputes before they result in chargebacks. While great for your chargeback rates, it’s also a good way to build trust with your customers.

To provide better support and services, we recommend joining forces with payment service providers who have a proven track record and know how to handle these kinds of situations (specifically in high-risk industries).

Additionally, it’s wise to:

  • Provide multilingual support
  • Use support channels like LiveChat
  • Offer 24/7 assistance

Detailed FAQ pages and giving the option to leave feedback (and taking it into consideration) can also improve your chances of having fewer chargebacks.

Follow Transparent Billing Practices

To avoid confusion and chargebacks that may come from a customer not recognizing a charge on their card, it’s necessary to use an accurate billing descriptor.

A clear descriptor should include the merchant’s business name, a phone number, and anything else that would help your customer identify a transaction. 

An example of a poor descriptor would be “ABC111” instead of your gambling site’s title. Use your business name and connect that to their transaction number to provide a clear indication of where the charge came from.

It’s important to note that this is tricky with gambling an iGaming businesses, as some customers may prefer these types of transactions to be more discreet. So, be descriptive but use a name that doesn’t directly point at a placed bet.

Conduct Regular Billing Reviews

Examining customer feedback, carrying out periodic auditing of billing statements, and keeping your transaction statements in order can help prevent smaller issues from snowballing due to a lack of oversight. 

To have a better overview of these matters and to reduce errors, cross-departmental collaboration might be needed.

We would suggest involving both accounting and customer service teams in these reviews as their joint knowledge can offer new insights and a broader perspective.

Offer Alternative Dispute Resolution

Chargebacks aren’t the only way to resolve disputes.

Mediation in dispute resolution, for example, introduces a third-party to the process, whose job is to assist the two sides in finding a solution that favors both (instead of resorting to a direct forced refund).

Arbitration in dispute resolution, however, is a process in which a dispute is still filed, but it’s done with the agreement of both parties involved, after which the arbitrator makes the final decision. 

Both alternatives can help resolve these instances without a chargeback as the outcome while helping maintain customer relations and avoiding other damaging consequences.

money is being sent back to the owner of the card from the merchant. Customer is happy, merchant is sad

Partner with FastoPayments for Reduced Chargebacks & Streamlined Gambling Payments

At the end of the day, having too many chargebacks can be detrimental to any business, but especially those in the iGaming and gambling industry

The only way to prevent that is to take proactive measures and work with real industry experts

FastoPayment’s high-risk merchant accounts come with everything you’ll need to do this—and more, including tools like chargeback alerts and top-notch customer support provided by our payment enthusiasts. 

So, if you’re looking for the best gambling payment gateway and merchant account services, get a free, no-obligation quote for high-risk gambling merchant account and payment processing services here.

We’ll review your business information and get back to you ASAP.

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