A chargeback is a dispute between a merchant and its customer (who paid by credit card). The customer or cardholder claims that their purchase or service wasn't fulfilled by the merchant and the merchant tries to prove that they did adequately render service by providing a receipt, signed agreement, recorded conversation, etc. The cardholder typically has anywhere from 45 to 180 days to submit a chargeback after the date of purchase or service rendered.
The chargeback process is essentially a mediation between the cardholder’s credit card Issuing Bank and the merchant’s Acquiring Bank (as a processor, we partner with Acquiring Banks). When a chargeback is received by an Issuing Bank from one of their disgruntled cardholders, the money from the sale is immediately debited from the merchant's account and given to the cardholder’s respective account while the dispute is decided.
This mediation process is governed by Visa/ MasterCard chargeback rules and regulations. If the Issuing Bank and Acquiring Bank can't come to an agreement, the chargeback can go to arbitration where a Visa or MasterCard rep (depending on the card) will ultimately decide the outcome. If the chargeback is deemed valid, the consumer retains the funds. If the chargeback is deemed as invalid, the funds are again debited from the consumer and re-deposited to the merchant's account.
Tips for Avoiding Chargebacks
The best way to resolve a chargeback is to prevent it from happening in the first place. Below are some simple measures that can help mitigate chargebacks from occurring:
1. Often, disputes are due to 'friendly fraud' or the customer simply has buyer's remorse. The best way to avoid this type of chargeback is to work closely with the customer to establish a mutually satisfactory solution. A partial refund is optimal, but even a full refund is better than a chargeback (unless you genuinely feel the customer is being dishonest).
2. Have your return/refund and cancellation policy clearly stated at your retail checkout and on your Website. For ecommerce sales, the customer should confirm that they have read the policy before their order can be processed. Have your return policy pre-printed on the credit card receipt.
3. Use a clear descriptor that customers will recognize. This is typically the Doing Business As name. (A descriptor is the name customers will see on their credit card statement to represent the purchase). For e-commerce, always include your phone number in the descriptor. If the customer does not recognize your descriptor, they can call the number to clarify the purchase.
4. If the service to be provided to the customer will be delayed, notify them by phone and in writing. Communication is the key.
5. If the product ordered is out of stock or the item is no longer available, advise the cardholder verbally and in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Giving the customer the option to cancel should help avoid a dispute.
6. If it is a custom order or there will be a delay in delivery, wait to process your customer's credit card until the time the product is shipped.
7. Utilize the Address Verification Service (AVS) and or the CVV2 security code on the back of the card. This requires the customer to confirm their zip code or security code and is a simple way to deter the acceptance of stolen credit cards. If necessary, you can even call the Voice Authorization Center to verify the customer's name, address and phone number.
8. Call and confirm large or suspicious 'card-not-present' orders. If you are unable to reach the customer you should void this transaction prior to settling your batch.
9. Always get signature for proof of delivery. Be able to provide a shipping tracer log that shows that the customer received the shipped goods.
10. If a customer requests cancellation of a recurring transaction that is billed periodically, always respond to the request and cancel the transaction immediately.
11. Always obtain an authorization for the exact amount of the transaction processed to the card.
12. Do not complete a transaction if the authorization request was declined.
13. If you receive a "Call" message in response to an authorization request, call your authorization center. This is often due to misuse of a card. If the authorization is approved, write the authorization code on the receipt.
14. Be suspicious of high-ticket sales requested to be sent next-day air or if a runner will be in to pick up the purchase at a later time.
15. Be very guarded against foreign orders. Typically, orders from Asia, the Middle East and Africa are fraudulent. Closely review orders with domestic billing addresses and foreign shipping addresses.
16. Never accept an expired credit card.
17. Settle your authorizations daily. Failure to deposit in a timely manner can result in chargebacks for "late presentment."
18. Settle your credits or refunds daily. Failure to process credits in a timely manner can result in chargebacks for "credit not issued."
Always respond quickly to a chargeback. There is a limited amount of time to respond and if you miss the deadline, you forfeit your ability to fight the chargeback.
Article ID: 36000114214