Chargebacks a primary challenge for penny auction websites

Penny auction websites are often at risk for chargebacks

Businesses in the penny auction industry have found that a number of issues lend to their high-risk perception in the eyes of merchant account lenders. However, chargebacks might be the one factor that most contributes to penny auctions' consideration as high-risk merchant accounts.

Chargebacks are a challenge for any e-commerce retailer or service provider. While many are legitimate and simply part of doing business online, others can be the result of customers who did not fully understand the business' terms and conditions or even fraud.

Penny auctions, which allow customers purchase bids up front and then place bids on for-sale items, are particularly vulnerable to visitors who were dissatisfied with their experience. Some may be unhappy that they did not win their bid and therefore demand a chargeback or refund to try and retrieve money.

As a result of these risks, penny auction websites often must turn to offshore banks to establish high-risk merchant accounts. However, there are ways these businesses can limit the financial harm related to chargebacks.

First and foremost, penny auction businesses must clearly outline the terms and conditions of their website's system to limit customer confusion. The more consumers who understand how the bidding process works, the lower the potential for refunds.

Yet even that measure will not entirely eliminate chargebacks. As a result, penny auction companies should ensure they are working with a merchant account manager and payment processing system that has tools to limit chargebacks and recoup losses in disputes.

Credit card processors with the capabilities to handle higher transaction volumes, constant item bidding and the chargeback process are the ones that are best equipped to mitigate loss for penny auction websites. Resources can help these businesses find the best payment and high-risk merchant account providers.