Prepaid credit and debit cards have become increasingly popular both for gift-giving and with individuals who are unable to open a traditional credit card.
But when transactions don’t go as planned, can customers still file chargebacks on items purchased with a prepaid card?
The benefit of these cards to e-commerce merchants is clear: Prepaid credit cards lets a whole new segment of unbanked consumers enter the online marketplace. And what merchant isn’t interested in more sales? And yet, as with everything in e-commerce, risk is involved.
Here’s what e-commerce merchants need to know about accepting these payments.
The Risk of Prepaid Cards
Sales of prepaid credit and debit cards are increasing: More than 55% of American adults purchased a prepaid card in 2014 — up from 47% in 2012. One reason for this popularity might be because prepaid cards limit spending. The dollar amount customers load is all they can spend, so there’s no blowing budgets as they shop online.
But despite this convenience, there’s still risk — for customers and merchants. Because these cards aren’t tied to a checking or savings account, customers must treat these cards as cash. That means if they’re lost or stolen, the customer is likely out the cash value, and they might not receive a refund for any fraudulent transactions. And if the cards come with an expiration date, cardholders may lose access to the available funds once that date passes.
For e-commerce merchants, however, these prepaid cards hold the same risk as traditional credit cards.
The Fair Credit Billing Act of 1974 first introduced chargebacks as a way to build consumer confidence in and encourage the use of credit cards. As time has marched on, some consumers have taken advantage of this “insurance” against fraudulent transactions and used chargebacks as a way to purchase a product and have a credit issued for the item, too.
Currently, federal law protects consumers against fraud by giving them the power to file chargebacks on credit or debit cards – but it doesn’t afford consumers this same protection with prepaid cards. In fact, the law doesn’t require network-branded cards to give consumers chargeback rights. That sounds like it should be good news for merchants, right?
Unfortunately, it still doesn’t mean consumers still can’t file chargebacks.
And that may come as a surprise to some merchants.
Instead, each individual card provider determines whether to allow chargebacks, and those terms and conditions are outlined at the time the customer purchases the card. So by accepting prepaid cards, e-commerce merchants are actually agreeing to the chargeback terms and conditions set forth by the provider. And if these terms and conditions allow customers to initiate chargebacks, e-commerce merchants have no choice but to abide.
Protect Your Business From Chargebacks
Whether their customers are using debit cards, traditional credit cards or prepaid cards, merchants risk business-damaging chargebacks every time they approve an online sale.
If you’re not protecting your business from the financial and reputational effects of chargebacks, you should be. And we can help.
ClearSale’s unique combination of trained experts and robust artificial intelligence gives you the confidence you need to grow your business and reduce fraud, false declines and chargebacks — all in one solution. Contact us today to learn how our managed services solution can protect your business, no matter where the threat is coming from.