Understanding Chargebacks and Why They Matter to Your Business

In this recent American Express ad, John McEnroe comes to an epiphany that credit card “dispute resolution” is easier than he’d ever realized. The commercial ends with McEnroe hugging after resolving a tiff with Klauss Umlauf, his former nemesis and referee at the U.S. Open. The announcer then reminds us how easy it is to resolve credit card disputes with American Express. Unfortunately for merchants, disputing a charge really can be that easy for customers. That is why merchants should take every precaution to be prepared for them should they arise.

According to Wikipedia, here are reasons customers ask for a chargeback:

· Card holder requests a copy of the transaction receipt.
· Card holder did not authorize the transaction.
· Non-matching account number.
· Transaction was processed more than once.
· Transaction receipt was not imprinted.
· Refund not processed.
· No authorization.
· Customer never received merchandise/services.
· Card not used within valid expiration date.
· Services not rendered.
· Error in transaction amount.
· Transaction receipt is incorrect, incomplete, or illegible.
· Transaction processed for incorrect amount.
· Product different from what was described or promised.
· Counterfeit transaction.
· Transaction not processed within Visa or MasterCard time frames.
· Failure to obtain card-holder signature.
· Signature on the card was blank.
· Signature on receipt different from card.
· Card-holder never authorized transaction.
· Card-holder claims merchant changed transaction amount without permission.
· Merchant knowingly participated in a fraudulent transaction.
· Incorrect Transaction Date.
· Card-holder claims invalid mail or telephone order transaction.
· Card-holder was denied ability to return item.
· Transaction was not canceled successfully.
· Card-holder not satisfied with quality of product or services

As you can see, there are many reasons why a customer can request his or her money back. As a merchant, you probably realize that customers are not always being honest or fair when asking for chargebacks, so it is important to cover your bases in case you are hit with a potential chargeback.

John Conde of sitepoint.com laid out the chargeback process like this:

1.) A customer disputes a transaction by contacting the bank that issued the card.
2.) The card-issuing bank researches the claim to see if it is valid or not. If not, the customer is responsible for the charge.
3.) If the claim is valid, the issuing bank offers the customer a provisional credit. The bank then takes the issue up with the merchant’s processing bank.
4.)The merchant’s processing bank then researches the chargeback on their own. They can decide to decline the chargeback and send it back to the card-issuing bank.
5.) The chargeback amount is removed directly from the merchant’s account and the merchant’s processing bank provides written notification to the merchant.
6.) If there was a processing error that was not the merchant’s fault, the sale is presented back to the card-issuing bank for corrections.
7.) The merchant provides documentation to remedy the chargeback. If this documentation is satisfactory, the chargeback is declined and the customer once again is charged for the sale. If the documentation is unsatisfactory, the chargeback is successful and the process ends.

In addition to taking the steps to prevent chargebacks covered in our blog previously, you can also ensure that your phone number is on any receipt or packing list, and that you respond to chargebacks or return requests as quickly as possible. This will ensure that you stay under that standard maximum of one to two percent that allows you to still use your merchant account.

Interested in more data about merchant accounts in general? Read our blog post that explains how payment is processed on your site.

Happy Selling!

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