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How to Protect Your Business from Chargebacks

There isn’t a merchant who enjoys dealing with chargebacks. Unfortunately, most retailers find themselves in the position of dealing with a chargeback at some point. While chargebacks can be annoying and a distraction from running your business, if you follow proper procedures, you will be able to get through the process with ease.

There are two main types of card transactions: Card Present where the physical card is presented at the time of purchase and Card-Not-Present where the transaction is conducted not in person. Although Card Present chargebacks are less common, they do happen and you should take steps to avoid and be prepared to dispute them. Manually entered transactions on POS terminals do not qualify as Card Present.

Ensure Your Basic Ecommerce Card-Not-Present Prevention Tools are in Place

The retailer’s payment system needs to have at least three basic fraud tools in place for Card not Present transactions:

  • CVV—Uses the numeric code on back of card to confirm that the customer has the actual card in hand.

  • AVS—Authenticates that the address attached to the card is the same as the address claimed by customer.

  • 3D Secure—Uses tools such as Verified by Visa and Masterpass by Mastercard into the payments system, which adds another password authentication requirement for customers.

For Card Present transactions, the merchant must ensure the following:

  • Make sure the terminal is EMV compliant and correct Cardholder verification is obtained.

  • Manually entered transactions do not qualify as card present. If the card was manually entered, get an imprint (electronic or manually)

  • Train staff on terminal issues to ensure that all cards are chip inserted to reduce future issues.

  • Where the card cannot be inserted, swiped or is manually entered always take steps to properly verify the cardholder’s documentation and address.

How the Chargeback Process Proceeds

Usually the chargeback process begins with a customer disputing a transaction by contacting their credit card issuer. While credit card companies have more than 150 chargeback reason codes, they generally fall into three categories:

  1. The item wasn’t received

  2. The item was not as described

  3. The item was the result of an unauthorized transaction

If the chargeback is deemed valid, the customer will immediately receive a credit for the disputed amount, with funds going from the merchant’s bank account to the issuing bank.

The acquirer will let the merchant know about the dispute (online or via physical mail). And then the merchant is invited to respond. Recent card rules have decreased the response time from 30 days to two weeks. It is recommended that a response, also known as a “representment,” should be received by the processor no later than five days following.

How to Deal with Chargeback Disputes

The worst response to a chargeback dispute is no response. Perhaps you don’t know what a chargeback is, or figure that the money is gone and the battle is over, or the transaction is so small that it’s not worth disputing.

Gather evidence you obtained during the purchase from your various sources to help dispute the chargeback such as:

  • Date/Time Stamp, Online transaction confirmations (if available)

  • Shipping, Returns and Terms and Conditions Policies

  • Billing, Invoice or Receipt details

  • Shipping Verification and delivery confirmation

  • CVV, AVS or IP Location Matches

  • Device Fingerprinting

  • Past Transaction History

  • Subsequent Transactions from Customer

  • Email Communication & Interactions

  • Phone Call Transcripts

  • Live Chat Transcripts

  • Social Media Interactions & Shares

If the merchant wins the dispute (and the outcome isn’t, in turn, disputed), the issuer will inform the cardholder that the chargeback is declined. Then the card network will take the funds from the issuer and send it to the acquirer, who will place them back in the merchant’s bank account.

Additional Precautions to Take for Chargeback Frauds

Keep the receipts: Having the shipping receipt (preferably signed by the customer), would prove that the customer did in fact receive the product.

Train your team: Where Card issues at the terminals arise, please ensure that staff are trained to best resolve or document the transaction which occurred, such as an imprint of the Card and review identification of the presenter at the time of sale including signature.

Spell it out: Highlighting your shipping and return policies in explicit detail on your website and on sales receipts, will ensure that your customers know what their options are. If they know they are going to be charged a penalty or restocking fee, they are much less likely to cross the chargeback line.

Avoid Duplicates: Generally, credits issued to cardholders will be cross-referenced with any potential chargeback in order to avoid a duplication. Merchants should ensure they properly communicate a credit to a cardholder and link the credit to the original transaction. Please ensure that credits are processed in a timely manner and confirmation provided to the cardholder.

Be alert: There are well-organized criminals lurking online with illegally obtained card holder information looking for their next target. Make sure you are protected by having the appropriate processes and tools in place to verify online clients.

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