Related Article: Chargeback Fees
A chargeback happens when a customer disputes a charge from your business and asks the card issuer to reverse it. Credit card chargebacks are meant to protect consumers from unauthorized transactions but they can result in headaches for businesses. When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do. This can be a complicated and time-consuming process involving a lot of paperwork and documentation.
Steps to Take
1. First, try to get in touch with the cardholder. Sometimes people forget about the payments they make. It’s also possible that there is an additional cardholder on the account or someone they authorized to use the card (e.g., a spouse) made the payment and was unaware of it at the time. If this is the case, ask them to let their card issuer know that they want to withdraw the dispute.
2. Provide Boulevard with whatever information you have in response to the dispute by navigating to your dispute area through Manage > Payment Processing > View Merchant > Disputes section. Examples of information we would look for are Customer Signature or any communication with the customer, which we will then bundle and group together with our own information (We have, for example, the IP address if the customer booked the original appointment, as well as any text message reminders and replies with the customer which indicates the customer intended to receive this service). Boulevard will submit all evidence we have to the bank, after which they will make their decision on the dispute resolution.
The Chargeback Process Explained
The chargeback process can differ between payment processors and it traditionally takes between 60–90 days to resolve. Here is an overview of the general chargeback process with most major processors:
Step 1: A purchase occurs – All chargebacks start with a customer making a purchase, either in-person, in-app, or online.
Step 2: Customer initiates the chargeback – After the customer reviews their credit card statement at the end of the month, they may notice a charge they didn’t authorize. The customer then contacts their credit card company (known as the issuing bank) asking to investigate the charge in question.
While the investigation is in process, the funds are removed (held) from the merchant account the charge took place with and the client gets a provisional credit on their account for the balance disputed. If the chargeback is resolved in the clients favor, the credit becomes permanent on their account and the funds do not get redistributed to the merchant account in which the charge took place. If the chargeback is resolved in the business's favor, the money gets redeposited into the merchant account and the client's credit gets removed from their account. This process is a universal process for all major institutions and is the same process you would go through if you initiated a dispute for a charge on your credit card.
Step 3: Issuing bank reaches out to the merchant’s bank – Once a customer initiates the chargeback process, the customer’s bank will reach out to the merchant’s bank asking them to provide proof that the customer purchased goods or services. This can include things like: invoices, receipts, proof of delivery—or anything else the merchant has to prove that the purchase was valid.
Step 4: Decision time – After reviewing all the proof provided by the merchant’s bank, the cardholder’s bank must decide whether or not the purchase was actually valid.
Step 5: Customer is informed – At this point, the customer must accept the proof provided by the acquiring bank and either pay for the goods, or continue to dispute the purchase and begin a process known as arbitration. If the acquiring bank determines the purchase was not valid, then the cardholder (customer) will receive a refund for the transaction.
Step 6: Arbitration – If the issuing bank and merchant bank fail to come to an agreement, as a last resort they’ll enter what’s called the arbitration process. The arbitration process is goverted by the issuing credit card company, and their decision is absolutely final. The credit card company (Visa, American Express, etc.) will review the proof provided by the parties and will have the last word on who must pay for the charges. If a merchant loses the arbitration process, they may choose to seek recourse and repayment in a court of law, at their own expense.
Credit Card Chargebacks: Some Common Causes
Here are some of the most common chargeback culprits:
1) Fraudulent transactions
If someone sees a charge from your business but never bought anything from you, it could mean that there’s fraud at play. This will likely instigate a chargeback.
2) Technical problems
If your website isn’t working properly, or customers fumbled something in the checkout process (user error), they may have been accidentally charged for something they didn’t intend to buy. Be sure to integrate a reputable POS and e-commerce system that has an easy-to-navigate checkout process.
3) Credit not processed
Another common reason for chargebacks is a mishap (or confusion) during the return or credit process. That is, customers return something expecting a refund and don’t see that credit in their bank account right away. To help avoid this, make sure you have a reliable system in place for handling returns and credits. Also make a point to clearly state your returns or cancellation policy to customers when they’re buying or returning something. That way everyone is on the same page.
4) Problems with items
Sometimes customers issue a chargeback if they’re dissatisfied with a product or service for one reason or another. Chargebacks for professional services can be the most difficult to arbitrate for this reason, as the quality of a service is widely subjective.
5) Unrecognizable business name
One of the most common reasons for chargebacks is billing clients with an unrecognizable business name. Let’s say your business sells coffee and bagels. Your shop is called “San Francisco Bakeshop,” but your business’ name is registered as S.F.B. Enterprises. When customers see a mysterious charge by S.F.B. Enterprises, customers may unintentionally initiate a chargeback for what they believe was a fraudulent purchase. Avoid customer confusion by having clear, consistent branding.
How to Prevent Chargebacks
Although there’s no guaranteed way to prevent chargebacks, merchants can take some steps to prevent some kinds of chargebacks from happening. This includes:
Have a clear, easy-to-understand return policy.
Have a recognizable business name on credit card statements.
Train employees on best practices for card-present and card-not-present transactions.
Accurately describe items. Customers who receive items that are not as described have valid grounds for a chargeback.
Responding to customer service issues promptly and courteously.
If you plan to initiate a series of recurring payments, be sure to obtain a signed credit card authorization form.
Remember: If you do get hit with a chargeback, it’s important to respond to your bank or payment processor promptly. Many banks will simply process the chargeback for the customer if a merchant does not respond in the allotted time.
What’s the difference between chargebacks vs. refunds?
A refund is a transaction initiated by the merchant, repaying a customer who is dissatisfied with the goods or service purchased. A chargeback is a dispute initiated by a customer, usually for a fraudulent transaction. In a chargeback, the transaction is reversed and funds are returned to the customer by the merchant’s bank.
What is a chargeback fee or chargeback settlement fee?
A chargeback fee, or chargeback settlement fee, is an additional fee your credit card processing company may charge you in addition to the reversed funds, if they find you at-fault for a chargeback. Many payment processing companies may disallow you from accepting credit cards entirely if you have an unusual amount of chargebacks on your account.
Is there a chargeback time limit?
Most acquiring banks put a timeframe on when customers can initiate a chargeback for a purchase. This ranges anywhere from roughly 60 to 90 days after purchase. Chargeback time limits vary widely depending on the issuing bank, and the chargeback code or reason. Check with the issuing banks to determine what time limits may apply to you.
Are debit card chargebacks handled in the same way?
Generally speaking, debit card chargebacks are more difficult for cardholders to dispute. If the debit transaction was processed as credit (with a signature) then the chargeback process is similar to other chargeback processes. But if the debit card transaction was approved by PIN, card holders have a smaller window in which fraud protection is available. Card-present debit transactions are considered the safest for merchants, which is why debit card transactions tend to be cheaper for merchants to process as well.
How do I write a chargeback rebuttal letter?
If you’re a merchant who’s been charged with a fraudulent chargeback, you may want to start the chargeback representment process. In addition to providing proof of purchase and goods delivered to the customer specified, you’ll also need to write a chargeback rebuttal letter to the acquiring bank. Before starting your letter, be sure to look up the chargeback reason code, and provide compelling proof of purchase.
In your chargeback rebuttal letter, you may want to include:
Receipts or invoices
Proof of delivery confirmation, particularly with signature
Proof that the item was acceptable (the customer used the item, didn’t complain upon delivery, etc.)
The correct recording and delivery of the customer’s CVC or AVS