The objective of the introduction of chargeback for funds was to give consumer protection. There are many loopholes that the cardholder has become aware of over the years. By exploiting the mechanism limitation, the consumer has become successful in unlawfully taking refunds from the merchants.
According to Juniper Research, the eCommerce merchants lost around USD 17.5 billion in 2020 due to chargeback. The loss figure is said to touch around USD 20 billion in 2021. These losses are primarily from the account of illegitimate chargebacks. It ranges from the scam of Paypal chargeback to charges that are unrecognized and unintentional.
The merchant wants to limit the chargeback demon along with providing a smooth and pleasant buying experience. So, they are accepting new payment trends like Bitcoin. Bitcoin value has been on the rise since 2008, and the technology ensures security in transactions. It also eliminates the chances of cryptocurrency chargeback.
It has become common for merchants to accept payments in Bitcoins. But does it provide a solution to the chargeback issues? What are the hurdles and pitfalls you must know?
What is Cryptocurrency?
Cryptocurrency is a form of digital money that has the following features:
- Digital – The existence is purely on the computer. No question of physical coins and notes.
- Peer-to-Peer – transactions happen between people directly.
- Irreversible – Ethereum or Bitcoin chances of transaction reversal are remote.
- Complex – It is not easy to understand cryptocurrencies and so have limitations to dispute.
- Volatile – The value depends on demand that means network activities, and so it is unstable.
- Decentralized – The cryptocurrency distribution is across multiple networks of computers, and there is no central server.
- Anonymous – There is no personal data required to make or receive payments through cryptocurrency.
How is Chargeback Eliminated from Cryptocurrency?
The merchant takes the customer’s details for the authorization of the transaction through a credit card. On completion of the transaction, the data of the customer can get compromised by fraudsters. Any financial transaction hacking becomes impossible if the payment is through cryptocurrency. It makes the merchant stress-free from fraudulent transactions. All the credit goes to cryptographic protection.
The card issuer refunds the money once the customer applies for chargeback without checking facts from the merchants. But a customer may not know anyone to register the complaint if the transaction happens through cryptocurrency. The sale through crypto is final until the merchant decides to refund on his own.
However, not every transaction through cryptocurrency carries a chargeback safety or is irreversible. For instance, few crypto exchanges offer consumers to buy Bitcoin through credit cards or PayPal. These transactions are capable of chargeback.
The Distinctiveness of Crypto Exchange Chargebacks
Apart from the astonishing fact that chargebacks are possible in crypto also, it occurs more than the conventional e-commerce transaction. A customer gives rise to a fraudulent transaction by purchasing crypto coins. If the value drops, they apply for a chargeback to get their funds back. They claim by informing the card issuer about the illegitimate usage of their details to complete the transaction.
However, there is some distinctiveness in the chargeback of the crypto exchange. In most instances, the customer buys cryptocurrency and then makes the payment with the same crypto. In this situation, it becomes non-eligible for any chargeback.
As of now, the alternatives to file a chargeback are not many against the merchant. The only option that a customer can use to file a chargeback is to the card issuer. Almost all financial institutions lack complete transaction details, so they cannot refuse a chargeback claim.
The crypto exchange can make their defense by consulting a chargeback mitigation service provider having relevant experience in handling similar cases. They will be able to advise action needed to win against the claim.
Moreover, a large number of chargebacks often makes the exchange crippled financially. The reason is the card network charges additional fines and fees for exceeding the limits of chargebacks. The monetary penalties are based on the chargeback-to-transaction proportion of more than 1.5 percent for Mastercard and 0.9 percent for VISA.
Is it Safe for Merchants to Adopt Bitcoins?
The chances of chargeback may not be guaranteed in cryptocurrency, but certainly, it can limit the risk. It means the transactions and funds getting credited in the merchants’ bank account are high.
More advantages include the following:
- Frauds Cases are Controlled – As trust lies with cryptocurrency and the third party is not crucial. There is no requirement to know someone or demand an identity to complete a successful trade.
- New Set Consumers – The value of the cryptocurrency bought by many people remains at an all-time high. But the people are not interested in getting them exchanged to fiat currency. Instead of exchanging, people are more interested in spending the cryptocurrency they have. Therefore, merchants who accept payment through cryptocurrency capture this set of customers.
- Fees are Minimum – No doubt the cryptocurrency fees are on the rise. But still, it is cheaper than the other options such as wire transfer and currency exchange fees.
The flip side of cryptocurrency is volatility. The merchant has to develop a system to convert the cryptocurrency into fiat currency instantly. It helps him to avoid the risk of high volatility. Also, on the one hand, cryptocurrency protects merchants from fraud and chargeback. But the room for the buyer is small as they are not protected or can get compensated for a fraudulent transaction.
Ultimately, the sale from a cryptocurrency is final, and the ways are limited through which a buyer can apply for a refund. The cryptocurrency transaction remains riskier, and many customers end up not completing the transaction.
Road Map for Tomorrow
The issue for the merchants about the chargeback has a solution in a crypto transaction. The root cause of chargeback, like delivery failures or below standard quality of products and services still stands unsolvable. With no perfect solution, the limitation in chargeback through cryptocurrency might make the consumer suffer.
It can become a piece of bad news for the merchant expecting a solution in cryptocurrency.
Some merchants believe in giving top priority to customer satisfaction so that the customer does not opt for the chargeback. Nevertheless, the signs are encouraging for the merchants as they can expect development in technology with time.