What is a Chargeback Cycle?
From a merchant's perspective, the chargeback cycle involves several stages, each requiring specific actions and attention. Understanding these stages is crucial for effectively managing chargebacks and minimizing their impact on the business. Here's an overview of the common chargeback cycle from a merchant's perspective:
1. Transaction and Sale
Initial Sale: The cycle begins when a customer makes a purchase using a credit card.
Record Keeping: It's essential for merchants to maintain detailed records of transactions, including receipts, customer information, and proof of delivery or service.
2. Chargeback Initiation
Notification: The merchant is notified of a chargeback when a customer disputes a transaction with their issuing bank.
Reason Codes: The notification includes a reason code, which explains the basis of the customer's dispute (e.g., unauthorized transaction, not as described, not received).
3. Merchant Response
Review and Decision: The merchant must review the chargeback claim and decide whether to accept the chargeback or fight it. Gathering Evidence: If contesting the chargeback, the merchant needs to gather relevant evidence to support the legitimacy of the transaction. This can include sales receipts, signed agreements, correspondence, proof of delivery, etc.
4. Representment
Submitting Evidence: The merchant submits the evidence to their acquiring bank or payment processor, who then forwards it to the cardholder's issuing bank.
Waiting for Review: The issuing bank reviews the evidence to determine if the chargeback is justified.
5. Resolution
Chargeback Upheld: If the issuing bank finds the chargeback valid, the merchant loses the disputed funds permanently, along with any goods or services already provided.
Chargeback Reversed: If the evidence favors the merchant, the chargeback is reversed, and the funds are returned to the merchant's account.
6. Possible Arbitration
Further Dispute: If either party disagrees with the resolution, the dispute can escalate to arbitration, typically conducted by the card network (Visa, MasterCard, etc.).
Final Decision: The arbitration decision is final and binding.
7. Post-Resolution
Fees and Penalties: Regardless of the outcome, the merchant may face administrative fees. High chargeback ratios can lead to increased processing fees or even termination of the ability to accept credit cards.
Analysis and Prevention: Merchants often analyze chargebacks to identify patterns or operational weaknesses. Implementing preventative measures is crucial to reduce future occurrences.
Conclusion
Understanding and effectively managing the chargeback cycle is crucial for merchants. It involves not only defending legitimate transactions but also identifying and addressing the underlying causes of disputes. Proactive measures, such as clear communication, accurate descriptions of products and services, and exceptional customer service, are key to minimizing the frequency and impact of chargebacks.
Article Number 36000476759