Credit Card Chargebacks

Woman and Man debating on credit card charge on a receipt

A chargeback is when a client disputes a credit card charge made by a company.

This is not good for the business, who could be counting on high-price purchases for their company. The company may not be at fault, but they will be the ones to refund the cash.

A chargeback fee must be paid by the party found at fault. Organizations like eCommerce giant PayPal charge businesses $20 per chargeback. Others like Visa and MasterCard go as high as $100.

Too many chargebacks can freeze your business’s merchant account. You also don’t get the money you were promised.

When it comes to credit card chargebacks, the burden of proof is on you, the business owner. The entire process could last as long as six months. In the end, the card vendor will always side with their client. Therefore, you must prove that the charge is correct on your end.

The Chargeback Process

  1. Customer’s card makes a transaction with a vendor
  2. About 30 days later, the customer sees a transaction on their credit card report that they do not agree with
  3. Customer calls their bank to dispute the charge
  4. The customer’s bank contacts the vendor’s bank for evidence to prove the transaction is valid
  5. Vendor’s bank asks the vendor for any financial data that relates to the chargeback
  6. Vendor’s bank goes back to the customer’s bank with the evidence
  7. The customer decides if the charge is valid or not

If the charge is valid

  • No more money changes hands
  • If the customer still refutes the charge, the vendor and customer go to arbitration, which will consist of a panel that decides if the charges are valid
  • Arbitration asks for the evidence as supplied by the vendor
  • Arbitration makes a final ruling on if the charge is valid

If the charge is ruled as invalid,

  • The vendor pays the customer the amount they are owed, then pays the credit card processor the necessary fees

How to Prevent Chargebacks

1. Check for customer scams or card fraud

Credit card fraud is one of the top reasons for chargebacks.

To prevent stolen cards from being used, do the following:

  • Make sure the card is present during a transaction
  • Check the card’s name, signature, and expiration date
  • Check the customer’s ID to see if it matches the card

2. Install EMV Card Readers

EMV cards are enhanced with improved security features. Installing an EMV card reader at your business protects you against chargebacks.

Businesses who have EMV card readers are more likely to win chargeback disputes. This will put a greater burden of proof on the cardholder.

3. Chargeback Insurance

Several organizations exist that protect businesses from chargebacks. Chargeback insurance companies cover businesses in many situations, including:

  • Accidental transaction of a stolen card
  • Accidental transaction of a forged card
  • Mismatched signatures

Businesses can get reimbursed for any services or products charged back. Also, companies can recoup costs if they are claiming lost profit.

4. Make sure the business name is the same both in your store and on credit card transactions

Let’s say you are a brick and mortar store called ABC, Incorporated. However, you work under a parent company known as XYZ Companies. Your business front is known as ABC, Inc., but all transactions are conducted as XYZ.

Your customer won’t know these are the same. This may lead them to dispute the charges. Making sure the business name matches on the receipt gets rid of confusion and cuts down on chargebacks.

Other reasons customers may want a chargeback include:

  • Products were not good enough
  • Services or products were misrepresented
  • They were billed wrong
  • They were not given the correct product

When this occurs, address customer concerns promptly and keep thorough records. These are issues unrelated to credit card transactions and are based on customer satisfaction.

With the right customer relations strategy, you could avoid chargebacks and save your company from any long term damage.

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