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Unfortunately, if you accept card payments, chargebacks are a fact of life. The chargeback process is designed to protect the cardholder. As a result, fighting chargebacks can seem like an uphill struggle for merchants. That said, getting hit with a chargeback doesn’t immediately mean a total loss. With a little knowledge, you can effectively fight chargebacks and win.
Chargebacks are designed to help cardholders. They are part of a mechanism provided by credit card companies such as Visa, Mastercard and Amex. They are there to offer protection to cardholders and to instil confidence in the system.
When someone fraudulently uses a customer’s card or when the customer isn’t satisfied with a product or service, they can initiate a chargeback. This can force the funds to be returned. Initiating a chargeback puts in motion a process which involves many of the key players in the payments landscape.
The actual cost to merchants of every €1 lost to chargebacks.
Here is a breakdown of all the various parties involved in the chargeback process:
All of these parties are involved in the chargeback process to some degree and, ultimately, they will all seek to minimise their liability.
Understanding exactly where that liability will lie depends on the reason that the customer is requesting the chargeback. There are various reasons that a customer may request to have funds returned. Broadly speaking, they can be broken into four categories:
The golden rule here is that if you believe the customer has a valid case for the chargeback because you dropped the ball, you should accept the refund. Not only is this the fairest approach, it will protect your reputation and save you the effort of challenging the chargeback.
In some cases, you may not even need to fight it yourself. For example, chargebacks that are raised due to processing errors will typically be handled between the issuing bank and the acquirer. There is no need for you as a merchant to waste energy on such cases.
If you strongly believe that the chargeback is fraudulent or dishonest, fighting it is not necessarily a given. For merchants, time is money. You don’t want to waste hours fighting chargebacks that you have no hope of winning due to lack of evidence or documentation.
In some instances, even if you know it was a valid transaction and you have good evidence, the cost and time involved in fighting a chargeback might lead you to simply accept it and move on.
When weighing up whether or not to fight a chargeback it is important to factor in all of the costs. Beyond the sales value, you might also incur fees or penalties. Even then, you might still decide the total cost is not worth the effort of fighting the chargeback. Paying a refund is always preferable to losing a chargeback dispute.
If you are satisfied that it’s a case you should fight, here is how you can win.
Ultimately, in order to overturn a chargeback you will need to build a successful case for ‘representment’. This is your response to the chargeback supported by ‘compelling evidence’.
The first step in mounting a challenge is understanding the reason behind the chargeback. When the chargeback shows up on your account, it will be accompanied by a reason code. Understanding these codes will help you to decide whether to fight it and what “compelling evidence” you will need to dispute the chargeback. Reason codes differ across the various credit card companies. You can find the reason codes for Visa in this Chargeback Management Guide for Merchants. Mastercard codes can be found here.
The allowed response time will often vary based on the reason for the chargeback and it will differ from scheme to scheme. When investigating the reason for the chargeback, make a note of the deadline for submitting your dispute and ensure that your investigation and evidence-gathering can be completed within that time frame.
As mentioned, the exact type of “compelling evidence” you will need will vary depending on the reason for the chargeback. Typically, you are trying to demonstrate that the goods or service was received by the customer. Or that you have fulfilled all of your obligations and that the liability for this chargeback lies elsewhere. Some examples of the evidence you might need are:
This list is not exhaustive and anything you can present to show that the transaction was valid and in line with what the customer ordered will aid your case.
Fighting chargebacks is a bureaucratic process. Ensure that you complete the necessary forms completely and accurately. Take time to double-check everything. Then ensure that you submit your response within the allowed timeframe and ensure you receive confirmation that your response has been received.
Having a system in place to measure your win-rate is important. Understanding your win-rate will help you to assess how worthwhile your efforts have been. It will give you a clear picture of the revenue you are recovering and it will help you in deciding which future chargebacks to fight. A high win-rate can also make banks more cautious when evaluating chargebacks against your account.
If you get hit with chargebacks regularly, you need to put good systems in place. You want data that assists you in understanding which chargebacks to fight. You want the ability to quickly gather evidence and formulate responses. And you want a clear picture of how successful you’ve been in challenging chargebacks. There are some good software solutions available which provide merchants with an all-in-one system for fighting chargebacks and managing the dispute resolution process.
Ultimately though, it’s better to avoid chargebacks altogether. Have clear terms of service that customers must agree to when making a purchase is a good way to dissuade malicious chargebacks and bolster your defence in any dispute.
Being easy-to-contact and providing responsive customer support can also help you to avoid chargebacks by resolving issues early.
Good payment systems are important too. Over-the-phone payments and other types of MOTO transaction are typically the most risky when it comes to chargebacks.
Online payments that pass through a 3-D Secure payment process can automatically shift liability back to the issuer. If you take card details over the phone or in some other offline manner that doesn’t require a PIN, you are more susceptible to card fraud and malicious chargebacks or friendly fraud.
Prommt helps businesses to eliminate these types of payments and ultimately reduces your exposure to chargebacks…
Prommt provides organisations of all sizes with a faster, more secure way to collect payments. Our platform reduces the risk of fraud and chargebacks, and helps keep you GDPR-compliant.
Secure & Compliant – No card details are passed between you, your customers or your staff, so the risks of card numbers being stolen or compromised are greatly reduced.
Get Paid Faster – Prommt is your companion in eliminating offline payments while still getting paid quickly. It helps you stay on top of all direct card payments requested and received.
Guest Satisfaction – Safe and convenient, Prommt puts the customer in control with a fully transparent and frictionless payment experience. Prommt can also provide guests with the ability to make payments across multiple currencies.
Clear Communication – Send branded, personalised payment requests by SMS and email as well as automatic receipts and notifications.
Reduce Fraud and Chargebacks – Prommt takes risky telephone and other offline payments through an online, 3-D Secure payment process.
Easy Integration – Prommt connects to your existing payment gateway while our API allows you to connect to your property management, CRM and booking systems.
Prommt provides organisations of all shapes and sizes with an efficient, affordable and feature-rich solution for managing telephone payments. It is easy to adopt and even easier to use. A free, 15-minute demo will show you exactly how Prommt can transform the way your business requests, collects and manages payments.
Prommt is the smart way to request, accept and track payment from your customers. We help businesses of all sizes save time, reduce costs, and get paid faster.
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