Everything You Need To Know About Chargebacks

June 17, 2020 | Merchants | Dustin

What’s a Chargeback?

A chargeback is the effect of a dispute of a charge by the credit cardholder. If the card issuing bank takes the dispute, it will instantly refund the charge to the cardholder. They will then file the chargeback via the acquiring system who will draft the refund from your checking accounts and send you notification of their chargeback. You will have 3-4 weeks to dispute the chargeback by providing documentation of this sale.

High risk merchant accounts are at greater risk of an unsuccessful dispute of a chargeback given the absence of a signed receipt, which provides proof of a sale. There are both valid (e.g. duplicate transactions and damaged things) and invalid (fraudulent) reasons for chargebacks. Merchants should take steps to prevent and minimize chargebacks, irrespective of whether the dispute is valid.

A Refund Versus a Chargeback

Not providing a refund can cause an unwanted chargeback, which can be very detrimental to a merchant’s long-term goals.

A chargeback is a refund that the merchant is forced to give, as opposed to a refund voluntarily given. If a company’s chargebacks exceed 1% of its total sales, you could end up paying fines or even having your merchant account shut down completely.

Once you’re in chargeback trouble, applying for another merchant account becomes even more difficult, especially for those who need a high risk merchant account. Many payment processors will deny your application.

Other payment processing companies may take you, however, they may charge higher fees. These fees could even be double, so you’ll be requested for a larger reserve upfront.

Needless to say, chargebacks are expensive, time-consuming, and resource-draining. They’re burdensome for all merchants, but smaller retailers can especially struggle if they do not have the necessary in-house expertise to make an impact.


How to Mitigate Chargebacks

The truth is chargebacks can occur for a variety of reasons. One thing is for certain: chargebacks account for revenue loss. While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures. This can help you stop chargebacks dead in their tracks.

Stay ahead of chargebacks by always making refunds in a timely manner. Make sure to refund the same credit or debit card the consumer paid with. Failure of timely refunds can result in a returned item chargeback or a basic credit card chargeback.

Another important tip is to always make sure you communicate how long it will take before the customer will see the refund. This information may seem basic to some, but when it comes to the integrity of how your business is conducted and consumer retention, it’s always best to cross your T’s and dot your I’s.

Above all else, be sure that your company chooses a secure high risk merchant account to deflect many of these stressors.


Top 8 Strategies to Manage Chargeback Risk

As stated before, there are various reasons a customer may dispute a fee. How a retailer manages the danger surrounding such disputes will determine whether it results in a chargeback.

Here are 8 common scenarios and approaches to mitigate risk:

01. Customer Refunds

When a client requests and is eligible for a refund, make certain to do this fast to avoid a”charge not processed” chargeback. Furthermore, make sure that your refund finance policy is clearly mentioned on every trade. The customer should be asked to click on an “I agree” button prior to the order being finalized. Make sure to only refund back to the same credit card used in the initial purchase.

02. Implement Diagnostic Controls For Fraudulent Charges

Since the card is not present throughout the trade, online transactions have higher fraud risk. Here are a few methods to reduce this threat:

  • Require the security code on the back of the credit card.
  • Maintain a record of problematic clients and block transactions from these customers.
  • Limit the number of transactions by the exact same customer for a particular time period (e.g. hour, day, week).
  • Maintain good financial records.
  • Track communication with clients and document customer IP addresses.
  • Use an address verification service. This will match the cardholder’s address to the card prior to approving the purchase.

03. Customer Service

When a customer cannot find your information when there is a question or criticism, they can go straight for their credit card company to dispute the charge rather than contacting you first. Make your customer support contact information easy to find.

Contact information should be easily visible on your website. Include it on shipped merchandise and also have it on all mail. Respond to your customers fast. This may encourage the client to call you with the dispute before going to their charge card business. They can give you the chance to correct the problem while boosting a good reputation for customer service.

04. Recurring Transactions

Recurring transactions are usually employed for subscriptions and are usually automatic. As soon as a customer cancels a subscription, act immediately to stop the automated payment. This will avoid several chargebacks from the same customer.

05. Product Not Received

A fee cannot be processed before products or services are provided. Using a delivery service that offers delivery confirmation will provide evidence of shipping. Companies like Amazon.com adopt this method of delivery tracking in order to maximize organization and minimize future complications.

06. Paying In Installments

Make certain to disclose all terms of an installment and have customers accept those terms using an “I agree” button. The first installment payment cannot be processed prior to the shipment of products.

07. Expedited Delivery

Payment could be processed prior to shipping when the sale is called “delayed delivery.” You can’t process a payment deposit before shipping. Again, have the customer click an “I agree” button.


Top 3 Strategies to Respond to Chargebacks

When a chargeback occurs for any reason, follow the steps below to obtain a higher prospect of successfully disputing the chargeback:

01. Respond to the dispute as soon as you get a notification. If you don’t respond within the required interval, you are going to drop the wholesale plus any chargeback penalties.

02. Collect all documentation surrounding the sale and give it to the credit card business. Include order confirmations, delivery notices, the client’s IP address, and correspondence with the customer.

03. Learn from each chargeback situation and react by setting up systems to protect against a similar occurrence.

Our experienced team has a wealth of experience helping merchants to better understand and mitigate chargebacks. Contact us today with questions regarding this topic or to set up a merchant account.

Set of color credit cards on wooden table - online shopping

Return Item Chargeback

There are many reasons a consumer may file a return item chargeback. There are over 50 chargeback reason codes between all the major card brands. While that list is too long to cover here, we wanted to address the most commonly abused reasons for a credit card chargeback dispute and how to fight chargebacks.


Chargeback Fraud

How to avoid this in the future: When it comes to credit card chargeback fraud, there are many tools available to merchants to alleviate fraud in the online payments world.

  • iSpy Fraud Tools: iSpyFraud is a rules-based fraud prevention tool that merchants can use to screen suspicious transaction activity. This helps merchants to stay one step ahead of credit card chargeback fraud.
  • Verified-by Visa/MC Secure Code: Both Visa and MasterCard have programs that allow you to add an additional layer of security to your sales. This can potentially avoid a return item credit card chargeback fee.
  • 3D Secure: 3D Secure was created by Visa and MasterCard to add an additional layer of security for Card Not Present (CNP) and high risk merchants.
  • Gateway Tools: Utilize the standard gateway tools at your disposal to avoid an unnecessary return item chargeback. Be sure you turn on and make use of AVS (Address Verification Services) and CVV (Card Verification Value).

Transaction Not Recognized

Processes to implement preventing this: In high risk payment processing, your payment descriptor is the merchant name as well as other identifying details that appear on the customer’s statement when they make a purchase. If the customer doesn’t recognize the name that appears on their statement, it is unlikely they will know what the charge was for.  To avoid a chargeback dispute, be sure your descriptor reflects what the consumer will recognize.


Incorrect Transaction Amount / Fraudulent Multiple Transactions

What to look for: You may run into a system error that can lead to the customer’s credit card being charged twice. This risks the potential of a return item chargeback fee. Occasionally, a customer accidentally presses the “Check Out” button twice, leading to a duplicate charge. If you see a duplicate order, assume that it was a mistake and contact the customer to confirm. If there is a manual process, the person processing the credit card might make an error. Avoid doing manual processing of orders, if possible. Be sure to state the chargeback time limit somewhere within your return policy guidelines.


Not as Described or Defective Merchandise

Here is what you should do: You can’t make everyone happy. That goes double for consumers. Make sure you have a responsive customer service team with short hold times. One thing infuriates a consumer more than long wait times; speaking with a customer service rep for a company with too strict of a return policy. You need guidelines for how to fight chargebacks. Make sure your return policy is clearly located on your website in a way that is fair for both parties involved.


Services Not Provided or Merchandise Not Received

The resolution: Start with clear expectations. Make a visible shipping policy on your website. Keep your customers informed by emailing order status updates. Sometimes there are circumstances out of your control, especially for those with a mobile merchant account. This can cause a delay in shipping. Issues in this area can range from unexpected weather causing shipping delays, to an unexpected turn in sales causing you to run out of product. Regardless, for a return item chargeback to be avoided, advise the customer of the delay and give them the option to cancel.


Canceled Recurring Transaction

The solution: If a customer requests cancellation of a recurring transaction that is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately  – or as specified by the customer. If you don’t want to fall subject to a credit card chargeback, advise the customer in writing that the service, subscription, or membership has been canceled and be sure to state the effective date of cancellation. Failure to respond to customer cancellation requests almost always leads to a chargeback.


Credit Not Processed

How to dodge this problem: Always make refunds in a timely manner. Make sure to refund the same credit or debit card the consumer paid with. Failure of timely refunds can result in a return item chargeback or a basic credit card chargeback. Make sure you communicate to your customer how long it will take before they see the refund.

When it comes to the integrity of how your business is conducted and your consumer retention, it’s always best to be overly cautious. Knowledge is power. Knowing how to fight chargebacks in regards to the chargeback time limit can be a powerful resource. Be sure that your company chooses a secure high risk merchant account to deflect many of these stressors and for all your payment processing needs.

If you’re unsure whether or not your company has been categorized as a high risk merchant, be sure to check out our list of high risk processing industries.

visa chargeback alerts and chargeback protection services
With the amount of credit card transaction disputes (commonly known as chargebacks) climbing out of control and with processing costs rising, Visa has introduced the Visa Claims Resolution (VCR) initiative. This is a form of chargeback protection. Effective April 2018, all disputes and chargebacks will be processed through the VCR dispute settlement process. By automating and simplifying the procedure, Visa expects to improve the efficiency of handling chargeback disputes and chargeback alerts.


Every retailer attempts to create a refund policy that will protect each purchase. Most payment processors prefer at least a 30-day unconditional refund policy. Many insist their customer take back the unused part of their merchandise.

Think of it this way, managing refunded products can prove expensive in several ways. Your payment gateway company may charge you for the effort to receive and track your returned items. Clients often get lazy or upset with the concept of sending back products. It’s time-consuming to re-package products to ship. Sometimes clients are averse to paying the postage charges to ship a returned item.

Some payment processors are now requiring that merchants provide refunds without getting the unused part of their merchandise back. The idea is to take a long-term approach, even if it means taking a couple of hits along the way. The goal is to assure that customers don’t contact their bank card company and initiate a chargeback.


Understand Visa’s Chargeback Protection Service for Merchants

Cut down the number of invalid chargeback disputes with Visa’s process. It aims to reduce the number of chargeback disputes to save retailers time and money.
Here are the highlights:

1. The issuer must offer information that is upfront. This procedure aims to help merchants understand the reason behind a chargeback dispute. Issuers will be asked to complete a chargeback dispute questionnaire with all the essential information, prior to when the chargeback dispute is initiated. Then the questionnaire will be provided to all of the parties that are involved.

2. Reduced reaction times will shorten chargeback timeframes from 45 days to 30 days.

3. Chargeback reason codes have changed. Visa’s 22 chargeback reason codes will be merged into client disputes – fraud, authorization, processing errors, and four guidelines. Depending upon the class, a retailer will have a swift way to offer evidence supporting the claim.

4. Visa will use merchant and client information to throw false chargeback claims out with chargeback alerts.


How to Prepare

With the VCR procedure around the corner, there are several steps retailers may take to prepare:

1. Keep Detailed Records

You have to have extensive records on your hands as a form of chargeback protection, as you will have to submit detailed evidence to support your claim. Together, with the chargeback dispute procedure, you’ll have to be able to access the information. This means you will be generating chargeback responses faster than before. The responses should have evidence that follows Visa’s strict regulations and rules concerning fraud and consent chargeback disputes.

2. Prepare to Look Closer at Chargebacks

Visa will weed out chargebacks that are invalid. Be ready to manage more real chargeback disputes and chargeback alerts. To ensure the best possible result, you have to create time to manage chargeback disputes and pay attention to chargeback alerts. This means taking action immediately. Treat every chargeback seriously. Someone in your business should be responsible for collecting and storing data, which can be seen as soon as it’s needed.

3. Use a Chargeback Protection Program

Favorable fraud and real fraud are rampant. Merchants looking to stay need to have chargeback protection options in place. Merchants that fail to take chargeback protection seriously will face cost increases, revenue declines, and hurt business reputations.

4. Advantages of this VCR

VCR’s goal is to cut down on chargeback disputes that are invalid while fulfilling the requirements of the payment market.
Advantages include:

  • Decreased Chargeback Dispute Volume: Through Visa’s automatic tests, VCR can decrease chargeback dispute volumes by blocking bogus chargeback disputes entered into the computer system.
  • A Proactive Settlement Process: Through a collection of new services and products, VCR enables merchants to take a proactive approach to resolve chargeback disputes. Merchants can identify trades like credits, reversals, and alterations through transactions that are affiliated.
  • Track and Monitor Chargeback Disputes: Indices provide Visa with mechanisms to proactively identify training opportunities or misuse. This results in quicker troubleshooting and resolutions.
  • Improved Customer Support: Quicker timelines offer better customer experience and quicker resolutions. Visa found that, typically, it takes between 46 and 100 times to resolve a chargeback dispute. VCR is expected to reduce that time.

Providing quick chargeback answers isn’t straightforward unless you have a strong understanding of the rules and regulations of Visa. Consolidate to a company like PayKings that offer payment processing, integrated payment gateway, and eCommerce store into one place. This will also give you access to partner businesses that can simplify your company’s chargeback dispute management.

June 17, 2020 | Merchants | Dustin