When accepting online rental applications, property managers typically allow a prospect to pay their application fee or holding deposit using a credit card as a convenience. However, with online payments comes chargeback risk which can plague property managers and can create financial loss for the properties. There are steps that properties can take to reduce the number of chargebacks and streamline the process, however only a few ways to protect themselves from this risk completely.
But first, what is a “chargeback?”
Chargebacks happen when a consumer submits a payment, but then later contacts their credit card company to dispute the transaction and get their money back. The cumulative effect of chargebacks is significant. A reported $7 Billion was lost to chargebacks in 2016 and the Nilson Report predicts chargebacks will rise significantly costing merchants $31 billion by 2020.
The chargeback rules exist to protect consumers, and valid chargebacks help protect cardholders against defective purchases, or cases of fraud/theft when the credit card was not authorized for use. However chargeback rules get frequently abused, and up 81% of chargebacks are simply fraudulent attempts to not pay for valid transactions.
In the case of rental application fees, property managers often see chargebacks when a rental application is denied, despite clear communication that rental applications fees are non-refundable. Property managers also sometimes run into chargebacks when payments are made from a joint account and one of the account holders does not recognise the payment, or when a resident moves out and neglects to cancel their autopay. No matter what the reason is behind the chargeback, this can create a headache for property management companies and a significant impact over time.
How does this impact properties?
Today when a chargeback occurs, the full original transaction amount plus a chargeback fee is immediately debited from the merchant bank account. A property must then submit a claim to the card networks in order to recover funds and “win” the chargeback dispute. The required claim documentation differs based on the product or service contested, but often includes receipts, proof of delivery, invoices or anything else that the merchant can provide to prove that the transaction was valid.
This dispute resolution process is time consuming and can take several hours to submit, and several weeks to resolve. In many cases for small dollar transactions the recovery costs simply outweigh the recovery benefit. According to Verifi, an industry leader in end-to-end payment protection, “every dollar lost to chargeback fraud costs you an estimated $2.40. In other words, a $100 chargeback costs you $240.” Rental application fees typically range between $15 and $25 and frequently these recoveries go un-collected and the property writes off this balance as financial loss.
The cumulative financial risk can be significant and property management companies (PMCs) are exposed to this risk for up to 120 days for credit card transactions, or up to 60 days with eCheck (ACH) transactions.
How to get 100% protection from chargebacks.
To combat the issue of payment risk and chargebacks Domuso pioneered the use of digital certified funds. Properties need the ability to accept “cash equivalent” online transactions just as if they were accepting a paper money order. With Domuso’s Online Certified option, there is no risk of chargebacks, fraud, or returns for insufficient funds. The exposure to risk of a chargeback claim is eliminated. Online certified payments can be made on Domuso’s platform using major credit cards and eCheck/ACH as risk free payments.
For rental application fees, Domuso’s chargeback risk protection is a game-changer. By incorporating Domuso’s payment technology into the renting process, properties save time by avoiding the hassle of recovery, and save money by avoiding chargeback fees and losses.