The chargeback process can be an overwhelming experience. For many merchants, particularly those new to e-commerce and CNP sales, it would be easy to get quickly submerged in chargeback information overload.
The primary focus of this blog is to provide education on some of the finer points of the chargeback process, including chargeback representment, reason codes, and the latest in CNP security. We’ll take a particularly close look at who is involved in the process.
To understand why it is vital for merchants to understand the details of the chargeback process, consider these statistics from a 2016 survey by TSYS on 1,000 shoppers and their preferred payment methods. The survey results revealed that 40% of shoppers prefer credit cards, 35% prefer debit cards, and 11% prefer cash. The number of shoppers who prefer to pay with credit cards increased by 5% compared to a similar 2015 survey. The preference for debit cards fell by 6%.
These numbers highlight a consumer trend towards using credit cards more often and moving away from cash. With card-present and card-not-present purchases, the need for adopting a reliable fraud prevention solution must be a priority for merchants.
It’s important to distinguish the difference between the cardholder and the customer. Often, customers may purchase from merchants with a credit card from a family member. In incidents of fraud, a stolen credit card—or stolen identity—may be used. The cardholder is the person who has been designated by the card-issuing bank as the primary individual connected to and responsible for the use of the credit card. This connection is established by the name imprinted on the card as well as the associated address of the cardholder.
This is an important distinction in understanding how the chargeback process is initiated. The chargeback process starts with the cardholder—not necessarily the customer.
A cardholder contacts their issuing bank to file a transaction dispute for any number of reasons. Often, the cardholder doesn’t recognize the charge on their billing statement and immediately assumes the card has been violated.
Without a solution in place that enables cardholder and merchant communication and enhances the level of detail in a cardholder’s online banking portal, the cardholder often believes they have no option but to contact their issuing bank. When fraud is not the underlying reason, the initiation of the chargeback process is not done with malicious intent—the cardholder simply doesn’t know any better. This is one example of “friendly” fraud.
The merchant is a business or person of business who sells products or services to the cardholder. The merchant is responsible for ensuring their website or mobile sales channel supports a secure authorization and purchasing process for the cardholder. The merchant is bound by several regulations and requirements, as dictated by the credit cards they support.
These regulations include providing a clear refund/return policy, sending confirmation emails on completion of the purchase, and ensuring that the credit card information entered is correctly validated and verified. These regulations are in place to provide merchant protection in the event a chargeback is filed. Merchants should thoroughly review the documentation provided to them by their credit card companies, to ensure their website meets expectations.
When the dispute is initiated, typically the merchant doesn’t learn of the resulting chargeback until they’re contacted by the issuing bank, which has already provided a temporary credit to the cardholder. When solutions that support merchant and cardholder communication aren’t being used, at this point it’s probably too late for the merchant to work with the cardholder to resolve the issue that has resulted in the chargeback.
The Issuing Bank
It’s important to distinguish between the issuing bank and a credit card company, a provider of branded payment cards such as Visa or MasterCard. The issuing bank offers these brand associated cards to their customer, the cardholder. Additionally, the issuing bank is responsible for reviewing the chargeback, providing a refund to the cardholder, and then contacting the merchant and acquiring bank about the chargeback.
The Acquiring Bank
The acquiring bank has key relationships with the credit card companies and with the merchants. The acquiring bank enforces the credit card company regulations and holds the merchants accountable.
The acquiring bank enables merchants to accept payments, issue refunds, and establish merchant credit. Like the merchant, the acquiring bank has a vested interest in chargebacks: the more chargebacks the merchant deals with, the higher risk the merchant. This higher risk results in more fees for the merchant, making it costly to run their business.
During the chargeback process, the acquiring bank receives notification of the chargeback from the issuing bank. The acquiring bank decides to accept or dispute the chargeback. When the decision is to dispute, the merchant is informed, too often with limited time to build their chargeback representment case.
The evidence that the merchant must provide in representment is a critical factor in the chargeback decision. For merchants, having easy access to key evidence such as proof of delivery, description of the item, tracking numbers, and sales receipts, is very important to achieving a successful case.
The acquiring bank sends the merchant’s chargeback representment evidence to the issuing bank. The issuing bank reviews the evidence and then makes a ruling, either in in favor of the merchant or the cardholder. This decision is then communicated to all parties involved—the cardholder, the merchant, and the acquiring bank.
The chargeback process is complicated, but it does not need to be overwhelming. With the correct support and solutions in place, merchants can be confident that they’re equipped to respond to chargebacks, and ultimately limit chargeback and fraud risk.
Verifi is your trusted team of chargeback experts. We have the knowledge and solutions that make it easier for merchants to protect their business from chargeback fraud. Contact us with your questions on chargeback fraud and we will be happy to help.