Venmo is a digital payment platform that allows users to send and receive money from friends and associates. As third-party payment services become more common, it’s no surprise that millions of merchants want to add Venmo to their payment options. However, merchants must consider whether their businesses can handle Venmo chargebacks.
In this article, you’ll learn how Venmo works, their chargeback process, and what to do to avoid them or reduce the chances of receiving a claim.
How Does Venmo Work?
To comprehend Venmo chargebacks, you must first understand how Venmo works. Venmo is a peer-to-peer (P2P) payment platform designed to simplify interpersonal transactions. Users can send money from their Venmo account to another user by linking their accounts to their bank account, credit card, or debit card.
While ACH and debit payments are free, credit card payments incur a 3% fee. After receiving a payment, recipients can transfer funds from their Venmo account to their bank account immediately by paying a transfer fee or waiting 1 to 3 days for a free transfer.
Venmo users can also get a Venmo-branded Mastercard, which allows them to withdraw funds from their Venmo accounts without transferring the funds to their checking accounts. The card functions similarly to a regular debit card and is accepted everywhere; however, the only disadvantage is that Venmo charges a fee for cash withdrawals made with the card.
Can Merchants use Venmo?
Venmo’s standard P2P platform does not allow merchants to accept payment for goods and services. However, they developed a separate system to help merchants respond to customer demand.
Venmo initially allowed merchants to accept Venmo payments via integration with Braintree or PayPal, but now it has introduced a new system that will enable merchants to create business profiles on the app to accept payments from Venmo users more efficiently.
What Is Venmo Chargeback?
A Venmo chargeback is a complaint a cardholder files with its issuing bank regarding a Venmo transaction. It differs from an internal Venmo conflict, typically handled directly by the payment platform. Venmo chargebacks can occur due to a variety of reasons.
Chargeback vs. Dispute on Venmo
Venmo’s internal dispute resolution process differs from the chargeback resolution process. Venmo handles dispute resolution through its purchase protection program, while card issuers typically manage chargebacks. Venmo users typically file chargeback complaints with their card issuers and disputes with Venmo.
Why Do Chargebacks Happen?
One common reason for chargebacks is fraud. Even though Venmo simplifies payments between customers, the transaction information still resembles typical bank dealings. And at the end of the day, Venmo needs to process payment transactions the same way banks do.
No payment system can be completely fraud proof, as fraudsters continue to manipulate any tools at their disposal. With Venmo and other P2P platforms, this usually takes the form of a fraudster using stolen account information to fund a Venmo account. This is the most common type of fraud that merchants will encounter. They send funds from the stolen account until the money runs out. When cardholders discover the missing funds, they call on their banks to investigate.
The Fair Credit Billing Act restricts a credit card holder’s liability for fraud to $50, and most issuers offer cardholders zero fraud responsibility as a perk. That increases the chances of an issuing bank trying to recover funds by filing a chargeback.
Aside from fraud, other reasons why chargebacks happen include:
- The customer hasn’t received an item or service they purchased.
- They received a damaged item.
- They were charged twice due to a processing error.
Venmo’s Policy on Chargebacks and Disputes
If a customer reports a chargeback for a payment sent to you, Venmo will notify you. Venmo structures chargebacks as queries for further info, including data and proof that you may have of the transaction. Venmo will request the following information if you want to challenge a chargeback:
- Any communication between sender and recipient
- Evidence of a refund, within or outside Venmo.
- Valid tracking data
- More proof or information you may have about the transaction
Chargebacks are handled by the card issuer, and Venmo does not make any decisions about them. However, too many chargebacks will lead to merchants being deactivated or suspended.
In the event of a chargeback complaint related to a payment you made in Venmo using a debit or credit card, your card issuer will provide you with an update. However, if you are informed about a negative balance in your account, Venmo will assist you. Nevertheless, Venmo will temporarily freeze your account until you recover your funds.
What Can You Do to Avoid Chargebacks?
Merchants can defend themselves against Venmo chargebacks by using the same tools to protect against other types of chargebacks. You can reduce the number of chargebacks filed against you by following these steps:
- Make sure that your paper trail for each transaction is well organized.
- Provide refunds and cancellations as soon as you receive a request.
- Make use of delivery confirmation.
- Communicate effectively with your customers.
- Use practical fraud tools to keep an eye out for suspicious behavior.
While conventional fraud management tools such as CVV verification do not apply to Venmo payments, methods such as screen scoring can assist in identifying funds that seem to be fraudulent payments. The only way to strike an effective balance is to scrutinize your transaction and chargeback info, pinpoint the sources of your chargebacks and modify your strategies and threshold accordingly. So, you don’t end up turning away legitimate customers, defeating the purpose of accepting Venmo payments in the first place.
Accepting Venmo payments is highly profitable because it represents new customers and thus increases revenue. However, before diving in and developing a mitigation plan to protect your business, you should be aware of the risks and complications of accepting payments from this platform. You can plan and set up tools to prevent chargebacks by understanding your liability in different payment situations, how the system manages disputes and chargebacks, and what the statistics reveal about your unique challenges. Merchants must understand the distinction between disputes and chargebacks to recognize that a chargeback will significantly impact their business than a dispute.