Brushing Up on Merchant Chargebacks

As a merchant, you’ve got a lot on your plate. Along with managing employees, maintaining a social media presence, and staying on top of your products/services, you also need to protect your business from threats. These threats come in many ways, but one that is often overlooked and poorly understood is that of chargebacks.

It is challenging to stay up-to-date with the latest technologies, solutions, and payment methods—so this is where we come in. In this blog post, we’re going to answer some of the questions we often receive in our various communications from merchant requests.

What Are Merchant Chargebacks?

A chargeback occurs when a customer disputes a charge on their credit card. Often, the customer will choose to contact their credit card company, rather than directly contacting the merchant. It would be ideal if the customer contacted you directly, since this could prevent the chargeback from ever occurring, saving you and the customer time, money, frustration, and confusion. You often don’t learn of the chargeback until late in the process, and then it’s up to you to decide to represent or dispute the chargeback or to simply accept the loss in revenue.

Why Do Chargebacks Happen?

There are legitimate reasons for a merchant chargeback, and then there are the not-so-legitimate reasons…

• Credit card was compromised  This is a legitimate reason and commonly occurs. Usually, the credit card company spots a fraudulent transaction before the customer even knows about it. In these cases, often the credit card company contacts the customer to find out if he or she did make the purchase in question, and this is when the customer learns of the fraud.

• Errors in processing a return  This is common and can be both legitimate and fraud-based. In legitimate cases, the customer’s credit card was not refunded correctly for a return. In other cases, commonly referred to as chargeback fraud, the customer didn’t return the item in question but is still attempting to get their money refunded.

• Technical processing problems  No payment solution or software is perfect all the time, and there will be errors in processing a credit card. For example, a delay in authorizing a transaction can cause the customer or merchant to double-charge the credit card, or there can be communication errors with the bank which cause the card to be mischarged.

What is the chargeback process?

• The chargeback process is summarized in the following steps

• The customer contacts their credit card company to dispute a charge.

• If the credit card issuing bank decides the complaint is warranted, it refunds the transaction amount charged to the credit card. If the issuing bank determines that the charge is indeed valid, the refund request is denied and the customer is charged a fee.

• When the chargeback is accepted by the issuing bank, it is then escalated to the merchant’s bank. The issuing bank now wants to get a payment from your bank for the refund issued.

• This is when you find out about the chargeback: during discussions with your bank, you can decide to accept or represent the chargeback. This decision is largely left up to you and it’s expected that you will follow the correct chargeback dispute protocols, including abiding by the chargeback guidelines as detailed by the credit card company and its accompanying list of chargeback reason codes.

• Eventually, the chargeback dispute is settled. This is a long process that can take anywhere from six weeks to six months. And, yes, this will drain your resources and be a costly experience for both you and your bank.

What Can Merchants Do to Prevent Chargebacks?

As a merchant, the onus is on you to implement a secure, end-to-end solution that serves to limit your risk of chargebacks and fraud, and works in the back-end to collect the data you need to effectively dispute a chargeback. With an end-to-end chargeback management solution, you’re giving yourself and your business the best method in protecting your payments from start to finish.Chargebacks can and do happen. Along with educating yourself about the business of chargebacks, online payment security, risk management solutions, customer care best practices, and more, it’s vitally important to have a proven and trusted solution in place to protect yourself, your brand, your business, and your investors.

How Can I Learn More about Merchant Chargebacks?

You’ve come to the right place! Browse our comprehensive list of merchant resources, read our FAQs, and contact us with your questions to make sure you find out what your chargeback ROI is and how it’s impacting your ability to remain profitable.