Is Your Business Prepared to Handle Venmo Chargebacks?
Venmo is a P2P (peer-to-peer) digital wallet app that allows cardholders to accept and transfer funds directly between friends and associates.
As mobile wallet and third-party payment apps gain popularity in our increasingly digital world, it’s no wonder that millions of merchants are looking to add Venmo to their list of payment options. There are caveats to every new platform, though, and Venmo is no exception when it comes to chargebacks.
- Venmo Chargeback
A “Venmo chargeback” most often refers to a dispute filed by a cardholder with their issuer stemming from a Venmo transaction. This is different from an internal “Venmo dispute,” as it involves the card issuer rather than being handled directly by the payment platform.
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A bit complicated, right? Let’s dig into how all of this works. In this article, we’ll dive into the differences between Venmo disputes and chargebacks and what merchants can do to prevent both.
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How Does Venmo Work?
As mentioned above, Venmo is a third-party payment app like PayPal or Cash App. It was created to help streamline interpersonal payments between users.
If a user has the app installed on their mobile device, that person can instantly transfer money from an existing Venmo account to another user. This is a super-convenient way to split the check for a meal with friends, lend money to a family member in need, or anything in between.
As a peer-to-peer (P2P) service, cardholders can easily send money back and forth through the app without the concern of merchant fees or penalties. Venmo is one of the most popular P2P payment apps with the general public for this very reason.
Can Merchants Use Venmo?
Venmo does not allow merchants to accept payments through their P2P system. Although in response to consumer demand, they have set up a secondary system for merchants called Venmo Payments.
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If you want to accept Venmo Payments, you’ll need to use their business platform designed specifically for commercial purposes. This includes Venmo’s Basic Fraud Tools suite for all merchants, plus Advanced Fraud Tools. You must integrate with Braintree or PayPal Checkout.
These services offer you the fundamentals needed for an effective anti-fraud strategy, including address verification, CVV check, and risk threshold rules. These products will help you filter out a significant portion of criminal fraud attacks by working in combination.
Can You Be Scammed on Venmo?
The short answer is yes.
Although Venmo facilitates convenient social payments between users, the backend of each payment still looks like a typical bank transaction. And at the end of the day, payments between banks still need to be processed and cleared. Venmo payments are no different.
No payment method can be completely foolproof or fraudproof. P2P payments are no exception; scams on these platforms are becoming increasingly common.
Fraudsters are resourceful, and they'll find a way to manipulate any tools at their disposal. With Venmo and other P2P payment apps, this usually takes the form of a fraudster using stolen account information to fund a Venmo account for personal use. When the cardholder sees the missing funds on their account statement, the bank is called on to investigate.
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Under the 1974 Fair Credit Billing Act, a credit card holder’s liability for fraud is limited to no more than $50. Beyond this, most card issuers will offer "zero fraud liability" as a perk to cardholders. That makes the issuer more likely to try retrieving the lost funds by filing chargebacks.
Below is just one example of how fraudsters can leverage Venmo to facilitate attacks:
This is why it's essential to have a strategic plan to prevent Venmo disputes and chargebacks before you start accepting transactions.
Venmo Disputes vs. Venmo Chargebacks
Venmo has its own internal dispute process. This is very different from the typical chargeback process for several reasons. The most significant differences are the order of operations and the deciding entity.
Dispute resolution is managed through Venmo via the Purchase Protection Program portion of their User Agreement. It stipulates that if a buyer cannot resolve issues with payment directly with the seller, they may file a Venmo Purchase Protection claim. This claim must meet specific criteria, though.
As you can see, Venmo has covered its bases for handling and filing customer complaints. For these, a buyer would deal with Venmo to achieve a resolution.
Venmo disputes are advantageous for merchants, as compared to Venmo chargebacks. The cardholder heads straight to their issuing bank with a chargeback rather than contacting the merchant or Venmo first. With chargebacks, the merchant gets hit with additional fees and other longer-term consequences.
How Do Venmo Chargebacks Work?
If a Venmo user files a chargeback for a payment sent to you, Venmo will let you know.
When you receive a Venmo chargeback, it’s generally framed as a request for more information. In this way, they ask for the details and any evidence you may have of the transaction in a targeted, concise manner.
If you wish to dispute a chargeback, Venmo will ask you to provide information including:
Any communication between the sender and recipient
Proof of a refund (either within or outside of Venmo)
evidence or info
Remember: Venmo transactions are bank-funded and subject to the rules and regulations that govern all bank accounts and payments. This means that all a customer needs to do to subvert Venmo’s dispute guidelines is to reach out to their bank directly for a Venmo chargeback instead of a Venmo dispute.
Another thing merchants ought to consider is that, while Venmo doesn’t make any decisions regarding the fate of a chargeback, they will suspend or terminate merchant accounts with too many chargebacks against them. Like any other payment processor, high-risk merchants mean more costs and reputational damage, which can be bad for business.
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How Can Merchants Prevent Venmo Chargebacks?
No matter how tight a ship you run, what precautions you take, and the amount of time and money you invest, you can never entirely prevent chargebacks. That’s the unfortunate truth.
That’s not to say that there aren’t a few best practices you can use to drastically reduce the frequency with which you experience chargebacks. You should:
- Make sure your billing descriptor is easily recognizable
- Use delivery confirmation
- Keep a well-organized paper trail of every transaction
- Communicate regularly with customers
- Grant refunds and cancelations as soon as requested
- Be on the lookout for suspicious behavior
When it comes to Venmo chargebacks and disputes, it’s important for merchants to remember the differences between the two and how each will affect their business.
According to our research, more than 80% of consumers have filed a chargeback with their bank. And, they’re likely to do it again.
It benefits merchants to be aware of and prepared for the problem. By introducing Venmo payments into the equation, merchants are essentially inviting a further opportunity to increase their chargeback ratios. That is certainly something to keep in mind.
Get Help to Fight Chargebacks
Bottom line: accepting Venmo payments can be extremely lucrative, especially if you’re focusing on Millennial and Gen-Z consumers. However, you need to be aware of the risks before you dive in, and develop a mitigation plan to protect your business.