What is a chargeback, and why do they get issued?
When a customer decides to dispute a charge made to their debit or credit card, it is referred to as a chargeback. The chargeback initially results in the debit or credit card charge being reversed and the funds that you received for the payment being returned to the customer. Chargebacks were introduced as a form of consumer protection against fraud.
Without modern authorization methods in place, the onus is on you to prove that the charge to the consumer’s credit card is valid and was approved by the customer. You must provide clear documentation that the customer initiated and approved the charge. If you are able to provide this documentation, the totality of the funds are returned to you and the customer is charged once again for the transaction.
The problem is that this is a complicated and lengthy process. You, the merchant must devote time, personnel, energy and money to fighting these chargebacks. Now, you would likely prefer to focus on what you do best and we think this is the smartest business decision you can make. Instead of spending your time, money, energy and personnel on chargebacks, let Verifi work for you.
We have a team of chargeback experts and Solutions that can alleviate the stress of dealing with chargebacks. You do what you do best, and we’ll do what we do best. We’ll work with you to find the best solution for your company, and will discuss your options with you. You might want to take advantage of our innovative Cardholder Dispute Resolution Network to prevent disputes from escalating to chargebacks. Or you might want a more comprehensive solution such as using both our Cardholder Dispute Resolution Network and our Intelligence® Suite to provide a turn-key risk management platform that allows you to benefit from customized services.
The bottom line is that you need to be completely prepared to prevent and fight chargebacks. Don’t get left behind spending valuable time fighting chargebacks and ignoring your core business processes.
Q. I’m new to chargebacks, what is the chargeback process?
The chargeback process is both complicated and lengthy. We have broken the process down into five steps in an effort to make it more clear for you:
Step 1: The customer contacts the bank that issued the debit or credit card and reports an invalid transaction.
Step 2: The issuing bank has a team of fraud experts who spend their time investigating such claims. If this team determines the claim is valid, the customer is provisionally refunded the charge. (If the team determines that the fraud claim is invalid, the claim is denied, the provisional credit is reversed. CDRN shortens the timeline to resolution.)
Step 3: Now that the issuing bank has been forced to provide a refund to the customer, the issuing bank then contacts your merchant account provider to obtain credit/payment for the refund.
Step 4: Your bank is now involved and begins investigating this chargeback. The onus is now on your bank to determine the chargeback validity. You will likely receive a notice from your bank alerting you to the chargeback and subsequent investigation.
Step 5: If the chargeback is determined to be invalid by your bank, they will decline the chargeback and alert the issuing bank of this decision. You will be notified of this decision and the chargeback amount is removed from your account. To prove that the chargeback is invalid, you’re expected to provide detailed documentation that clearly demonstrates that the customer did indeed initiate and approve the charge. If you cannot provide correct and up-to-date documentation tracking the charge, the chargeback amount is determined to be valid and you are charged and lose the revenue from this sale.
The chargeback process can take up to six weeks or six months. This of course involves a great deal of your time, energy and money.
With a chargeback management solution like Verifi’s Cardholder Dispute Resolution Network (CDRN), you will be notified almost immediatedly after the customer contacts their issuing bank to file a dispute.
Q. Can you tell me some of the most common reasons for chargebacks?
Every industry is unique and because of this, the list of chargeback reasons can vary from industry to industry. But in general, the most common reasons for chargebacks include the following:
- Fraud: for example, identify theft.
- Issues with the product or service: for example, the product was not as described on the website.
- Transaction is not obvious: Billing descriptor does not clearly identify merchant.
- Product or service was not received: for example, the customer ordered a product but it was delivered to an incorrect address and was never received.
- Refund was declined: for example, the customer used an expired card or there was a clerical error processing the charge.
- Duplicate charge: for example, the first charge appears to be declined so the customer’s card is swiped a second time and this charge is approved, when actually the first charge was approved.
- Questions about the cost: for example, the customer may have used an online discount code that was not correctly applied during the credit card processing.
- End of Subscription: for example, the customer has decided to cancel a repeat subscription but did not follow the cancellation guidelines correctly.
To track these chargeback reasons and many more not listed here, each credit card issuer has its own list of chargeback reason codes. If you’ve decided to manage chargebacks yourself, you must be aware of these different reason codes and understand how best to defend these chargebacks. Follow these links to learn more about the chargeback reason codes from each credit card company: Visa, MasterCard, American Express, and Discover.
When you’re learning about these reason codes, think of the five-step process we’ve detailed above and how you will find the personnel, time and money to defend your company against these chargebacks.
Yes, we agree, this is a lot to expect from your employees who are not chargeback and merchant services experts. Now is the perfect time to browse our website and learn more about Verifi’s Solutions and Resources available to your company.
We are on your side and want to see your company thrive. Contact us to learn how we can take the stress out of chargebacks and get busy working for you.