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A chargeback is a transaction that an
Issuer returns to a merchant bank and most often, to the merchant - as a
financial liability.
In essence, it reverses a sales
transaction, as follows:
* The card issuer subtracts the transaction dollar amount from the
cardholder's Visa account. The cardholder receives a credit and is no
longer financially responsible for the dollar amount of the transaction.
* The card issuer debits the merchant bank for the dollar amount of the
transaction. * The merchant bank will, most often, deduct the
transaction dollar amount from the merchant's account. * The merchant
loses the dollar amount of the transaction. For merchants, chargebacks
can be costly. * You can lose both the dollar amount of the transaction
being charged back and the related merchandise. * You also incur your
own internal costs for processing the chargeback.
Why Chargebacks Occur |
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The most common reasons for chargebacks
include: * Customer disputes * Fraud * Processing errors * Authorization
issues * Nonfulfillment of copy requests (only if fraud or illegible)
Although you probably cannot avoid
chargebacks completely, you can take steps to reduce or prevent them.
Many chargebacks result from easily avoidable mistakes, so the more you
know about proper transaction-processing procedures, the less likely you
will be to inadvertently do, or fail to do, something the might result
in a chargeback. Of course, chargebacks are not always the result of
something merchants did or did not do. Errors are also made by merchant
banks, card issuers, and cardholders. Your Responsibility
From the administrative point of view, the main interaction in a
chargeback is between an Issuer and a merchant bank. The Issuer sends
the chargeback to the merchant bank, which may or may not need to
involve the merchant who submitted the original transaction. This
processing cycle does not relieve merchants from direct responsibility
for taking action to remedy and prevent chargebacks. In most cases, the
full extent of your financial and administrative liability for
chargebacks is spelled out in your merchant agreement. Customer Dispute
Chargebacks
Customer disputes are one of the most common reasons for chargebacks. A
customer may dispute a transaction because: * A credit has not been
processed when the customer expected it would be. * Merchandise ordered
was never received. * A service was not performed as expected. * The
customer did not make the purchase; it was fraudulent. Because these
chargebacks may indicate customer dissatisfaction - and the potential
for lost sales in the future - addressing their underlying causes should
be an integral part of your customer service policies.
If a cardholder with a valid dispute contacts you directly, act promptly
to resolve the situation. Issue a credit, as appropriate, and send a
note or e-mail message to let the cardholder know he or she will be
receiving a credit. Chargeback Remedies
Even when you do receive a chargeback, you may be able to resolve it
without losing the sale. Simply provide your merchant bank with
additional information about the transaction or the actions you have
taken related to it. For example, you might receive a chargeback because
the cardholder is claiming that credit has not been given for returned
merchandise. You may be able to resolve the issue by providing proof
that you submitted the credit on a specific date. Send this information
to your merchant bank in a timely manner.
The key in this and similar situations is always to send your merchant
bank as much information as possible to help it remedy the chargeback.
With appropriate information, your merchant bank may be able to
resubmit, or "represent", the item to the Issuer for payment.
Timeliness is also essential when attempting to remedy a chargeback.
Each step in the chargeback cycle has a defined time limit during which
action can be taken. If you or your merchant bank does not respond
during the time specified on the request - which may vary depending on
your merchant bank - you will not be able to remedy the chargeback.
Although many chargebacks are resolved without the merchant losing the
sale, some cannot be remedied. In such cases, accepting the chargeback
may save you the time and expense of needlessly contesting it.
Representment Rights for Card-Not-Present Merchants
Card-not-present merchants should be familiar with the chargeback
representment rights associated with the use of AVS, CVV2, and the
option to provide compelling information. Specifically, your merchant
bank can represent a charged-back transaction if:
* You received an AVS positive match in the authorization message and if
the billing and shipping addresses are the same. You will need to submit
proof of the shipping address and delivery. * You submitted an AVS query
during authorization and received a "U" response from a U.S. Issuer.
This response means the Issuer is unavailable or does not support AVS. *
You submitted a CVV2 verification request during authorization and
received a "U" response from a U.S. Issuer. This response means the
Issuer does not support CVV2. * You can provide documentation that you:
* spoke to the cardholder and he or she now acknowledges the validity of
the transaction, OR received a letter from the cardholder that he or she
now acknowledges the validity of the transaction.
If you believe you have AVS, CVV2, or compelling information
representment rights on a charged - back transaction, work with your
merchant bank to ensure that all supporting evidence for the
representment is submitted. Avoiding Chargebacks
Most chargebacks can be attributed to improper transaction-processing
procedures and can be prevented with appropriate training and attention
to detail. The following best practices will help you minimize
chargebacks.
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