The Small Business Owner’s Guide To Preventing Chargebacks (& 12 Tips For Fighting Chargebacks)
If you’ve been operating for any length of time, you know that dealing with chargebacks is one of the most frustrating aspects of running a business. Originally designed as a consumer protection measure, chargebacks have become a double-edged sword that can, under the wrong circumstances, hurt your business and cost you a lot of money, time, and effort.
In a perfect world, you’d be able to take a series of proactive measures that would protect you from ever having to deal with chargebacks. Unfortunately, they’re an inevitable part of running a business that you’ll have to deal with sooner or later. For most merchants, chargebacks will only be an occasional irritant. For others, a high chargeback rate can lead to your business being classified as a high-risk merchant or even having your merchant account frozen or shut down. While we can’t make your business 100% chargeback-proof, we can help you to minimize their frequency and offer some tips on dealing with them when they inevitably occur.
This article will give you a thorough background on what chargebacks are, why they happen, and how to deal with them. We’ll also discuss the many steps you can take to lessen the number of chargebacks you’ll incur when running your business. If you’re having trouble with your current merchant account provider, we recommend that you consider switching to one of our favorite credit card processing companies.
Table of Contents
- Why Small Businesses Need To Prevent Chargebacks
- Reduce Chargebacks By Understanding What Causes Them
- How To Fight Chargebacks: The Chargeback Resolution Process
- 12 Essential Tips For How To Avoid Chargebacks
- How To Deal With Chargebacks Effectively
- Seeing Too Many Chargebacks Lately? Look For Trends & Revisit Your Policies
- Preventing Chargebacks Is All About Being Proactive
Why Small Businesses Need To Prevent Chargebacks
At its most basic, a chargeback is a reversal of funds transferred from the consumer to the merchant. In other words, your customer “takes back” the payment they’ve made to you. Chargebacks are performed by the bank that issued the customer’s credit or debit card, but they’re initiated upon a request from the customer.
It’s important to distinguish a chargeback from a return, which is where the customer seeks to give the goods back to the merchant and get a refund on the money they’ve spent. Returns are relatively straightforward and don’t get the banks involved. If you have a fair, consistent return policy, you can lower your chargeback rate considerably by making things right with the customer before they feel the need to resort to initiating a chargeback. Terminology can also be confusing, as the customer can dispute any payment method. While chargebacks typically refer to disputing a credit or debit card transaction, electronic check payments, such as ACH payments and e-checks, can also be disputed.
Chargebacks represent a double whammy for merchants. Not only do you have to pay back the funds that were credited to the consumer, but you’ll also be charged a fee by your merchant services provider to investigate and resolve the chargeback. In most cases, you won’t get this fee back, even if you prevail in the chargeback investigation and get the purchase price returned to you. Chargeback fees usually cost $15-$25 per incident, regardless of whether the transaction in question was for $10 or $10,000. We haven’t found a provider yet that doesn’t charge this fee, although some providers charge less than the industry average, and a few will even refund your chargeback fee if you prevail in the investigation.
If you become involved in a chargeback investigation (and sooner or later, you will), the first thing to remember is that chargeback policies are designed as a form of consumer protection. In other words, they’re intended to protect customers from unscrupulous merchants. They aren’t designed to protect you from dishonest customers — something that has become more of an issue in recent years due to increasing rates of chargeback fraud. The overall effect of these policies is that the rules are weighed heavily in favor of the consumer — not the merchant. While we strongly encourage you to defend yourself against any chargeback that you feel is unfair or possibly fraudulent, realize that the odds are stacked against you. In fact, fewer than one in five chargebacks are resolved in favor of the merchant.
What Happens If You Have Too Many Chargebacks?
While an occasional chargeback is to be expected, experiencing too many of them can seriously harm your business. Not only can they hurt your reputation, but they can also cost you money in several ways. Besides the cumulative expense of getting hit with multiple chargeback fees, having too many chargebacks can get you classified as a high-risk merchant. That will inevitably result in you having to pay much higher processing rates and account fees to maintain your merchant account.
Too many chargebacks can also result in your provider freezing or terminating your merchant account, leaving you with no way to accept credit or debit cards. While this can be extremely inconvenient to a retail business, it’s catastrophic for eCommerce merchants whose customers will be left with no way to purchase your goods or services. Having your account terminated can also get you placed on the Terminated Merchant File (TMF), making it doubly difficult to obtain a new merchant account.
To determine whether your business has an excessive number of chargebacks, your merchant services provider will monitor the chargeback rate on your account. This rate is simply the percentage of all transactions that result in a chargeback. If this percentage exceeds a certain amount (usually 1%), your provider will take action. Your account may be converted to a high-risk status or simply terminated. How aggressively your provider acts when you exceed a 1% chargeback rate will depend on the risk mitigation policies they have set in place, and these policies vary from one provider to the next. Note that if your business type is one that commonly experiences a high chargeback rate, you may be given a high-risk merchant account as soon as you sign up, regardless of your actual chargeback rate. If you’re concerned that this might happen to you, see our article on the best high-risk merchant account providers for some recommended vendors who specialize in high-risk merchant accounts.
Reduce Chargebacks By Understanding What Causes Them
Chargebacks can occur for a wide variety of reasons. Almost all of these reasons will fall into one of the following broad categories: (1) clerical or technical error, (2) customer dissatisfaction, or (3) fraud. Here are just a few examples of the possible reasons you might experience a chargeback:
Chargeback Reason #1: Clerical Or Technical Error
Between you, your merchant services provider, and the customer’s issuing bank, there are plenty of opportunities for someone to make an honest mistake or for a computer glitch. These kinds of errors include the following:
- Expired credit or debit card
- Accidental duplicate billing
- Incorrect amount billed
- Refund authorized but never credited back to the customer
- Issuing bank error
Chargeback Reason #2: Customer Dissatisfaction
If the customer isn’t happy with how the transaction turned out, they might request a chargeback without contacting you first. Customers can be dissatisfied for any number of reasons. Here are some of the more common ones:
- Item (or services) not as described, poor quality, etc.
- Item not delivered within the specified delivery window
- Item (or services) never received
- The customer attempted to return an item but claims to have been refused
- The customer doesn’t recall authorizing the transaction
Chargeback Reason #3: Fraud
Fraudulent transactions account for well over 50% of all chargebacks and are a common source of inconvenience to merchants and customers alike. Fraud can take one of three forms:
- Fraud on the part of the customer (e.g., claiming not to have placed an order when they actually did).
- Fraud on the part of a third party (e.g., the card was stolen, or cardholder data was obtained illegally).
- Fraud on the part of the merchant (e.g., using the customer’s card data to make additional, unauthorized transactions). Note that chargeback policies and procedures are primarily designed to protect consumers from this type of fraud.
When a chargeback is initially investigated, the issuing bank will assign a reason code to explain to the merchant why the customer is disputing the transaction. All the major credit card associations, including Visa, Mastercard, Discover, and American Express, have their own set of chargeback reason codes, so you might want to look them up if you experience a chargeback and receive a code with no further explanation. Because chargebacks are a consumer protection measure and the “reason codes” are issued before the bank has had a chance to investigate the situation fully, the initial assumption is always that the customer is telling the truth.
Unfortunately, eCommerce is particularly vulnerable to fraud, so merchants in this sector will have to be extra vigilant to protect themselves. Our guide to online credit card fraud offers more information on this subject as well as numerous tips on how to protect your business from fraudsters.
How To Fight Chargebacks: The Chargeback Resolution Process
Every chargeback is investigated and resolved following a standardized process, regardless of the issuing bank or credit card association that sponsored the card involved in the dispute. This process consists of the following steps:
- Initial Filing: In almost all cases, the customer must request a refund from the issuing bank to initiate the chargeback resolution process.
- Initial Review: Based upon information provided by the customer (and assuming the customer is telling the truth), the issuing bank will review the circumstances surrounding the disputed transaction and file a reason code to categorize the assumed reason for the chargeback.
- Investigation: The issuing bank investigates the customer’s claims and any other available evidence. It then decides whether the claim is valid. If it is, it issues a credit to the customer and removes the disputed funds from the merchant’s bank account. If, on the other hand, it decides that the claim is not valid, the chargeback is voided and no further action is taken. Note that this decision is not final.
- Processor Review: The merchant’s processor reviews the chargeback. If the processor has evidence that the chargeback is not valid, it will act on the merchant’s behalf to invalidate it. Otherwise, it will levy the chargeback fee and pass along all information it has to the merchant.
- Merchant Review: The merchant now has the opportunity to review the chargeback and present any additional evidence that could affect the outcome. Note that this is usually the first time in the chargeback resolution process that you will be informed of the circumstances surrounding the chargeback.
- Re-Presentment: The processor re-presents the chargeback based upon any additional evidence offered by the merchant.
- Final Decision: The issuing bank reviews all evidence presented and issues a final decision. If the chargeback is invalidated, funds are returned to the merchant. Most processors, however, will not refund the chargeback investigation fee even in cases where the merchant prevails in this process.
12 Essential Tips For How To Avoid Chargebacks
You’ve probably concluded by now that the chargeback resolution process is not designed to work in your favor. While the process overwhelmingly favors customers, it’s not entirely one-sided. Nonetheless, your odds of prevailing if you dispute the chargeback are pretty low. Your best bet is to avoid getting into this situation in the first place. Here are some common-sense tips for preventing chargebacks:
1) Communicate With Your Customers
Many chargebacks can be easily avoided or even rectified if there is open communication between the consumer and the merchant. This works both ways: Consumers should always at least attempt to resolve the situation through communication with the merchant before resorting to requesting a chargeback. This step is particularly important for eCommerce merchants, who never get to meet their customers in person.
How do you do this? For retail merchants, posting clear refund policies in your store and on your website (if you have one) is a must. Verbally explaining these policies to your customers before finalizing a sale can also be beneficial. Online merchants will have to settle for posting refund information on their websites, but you should make an effort to make it as easy as possible for a customer to find this information. In either case, the goal is to clarify the refund procedure before a customer completes a purchase.
2) Clearly Describe Your Product Or Service
As a merchant, make sure you give clear descriptions of your products and service policies so that liability is more likely to fall on the consumer for unsatisfactory purchases. Again, this step is especially important for eCommerce merchants, as the customer will have to make a purchasing decision without seeing the product in person.
3) Offer Excellent Customer Service
In far too many businesses, customer service is an afterthought that doesn’t receive the commitment it deserves. Making it as easy as possible for your customer to contact you by telephone or email will pay dividends in the form of both happier repeat customers and fewer chargebacks. Make it a priority to respond to all inquiries as soon as possible.
4) Set Clear, Straightforward Return Policies
While no one likes to have to process a return, it’s far less expensive and inconvenient than having to deal with a chargeback. If a consumer is truly unhappy with their purchase, having an easy return policy can drastically lower the likelihood that they will pursue a chargeback. Return policies should be clear and cover any potential situation. At a bare minimum, define how long after purchase that the customer has to initiate a return and any restocking fees that may apply.
5) Confirm The Expiration Date Of All Credit/Debit Cards
You should never accept an expired card. Most credit card terminals will detect an expired card automatically, but you should still manually check the card as a backup. Train your employees to do this as well.
6) Get The Customer’s Signature For Magstripe-Only Cards
As you may have heard, the major credit card associations are phasing out the signature requirement for credit card purchases. However, this change only applies to the use of EMV (chip) cards, which are far more secure than the old magstripe-only cards. While most customers now have chip cards, there are still some magstripe-only cards in circulation, and you’ll still need a signature to process them.
7) Provide Your Company’s Contact Information
Card processing errors can easily be fixed by providing consumers with your contact information, whether on the receipt or your website, so they can reach you directly and have the error corrected without initiating a chargeback.
8) Optimize Your Billing Descriptor
A billing descriptor is simply the name of your business as it will appear on a customer’s bank or credit card statement. Chargebacks often can be a matter of a misunderstanding, especially if the consumer is unclear about the transaction details that appear on their statement. Be sure to let the consumer know what business name will appear on their statement. If they cannot recognize the name of your business because of a DBA, the consumer may begin the chargeback process.
9) Keep Detailed Records Of All Transactions
Chargeback fraud by consumers is becoming more common all the time. It’s all too easy to make a purchase (especially online) and then report it as a fraudulent transaction to the issuing bank. Every year, merchants lose billions of dollars in lost merchandise, transaction reversals, and chargeback fees, all caused by unscrupulous consumers who purchase items and then claim they never did. On many occasions, these cases are lost by the merchant for a lack of providing simple and clean records.
Ensure your sales receipts are complete and legible so that they can be clearly understood by the consumer as well as act as a valid piece of proof during a chargeback dispute. A clean receipt should be the first step in fighting a chargeback.
10) Save All Receipts
The statute of limitations for issuing chargebacks vary from provider to provider. However, it can be anywhere from 180 days to three years following a transaction. We recommend that merchants retain their receipts and records in an organized fashion, so they can quickly and accurately provide information upon request.
11) Set Clear Shipping Expectations
Often a consumer will issue a chargeback when they pay for an item but have yet to receive it. As a merchant, make sure all merchandise has shipped before depositing a sales receipt. If a customer doesn’t have an item but sees it on their credit card statement, they may decide to request a chargeback.
Clearly communicate the expected shipping time and any known delays in delivery. A chargeback for “services not provided/merchandise not received” can be corrected with shipping details, carrier confirmation, and evidence of delivery, such as a signed delivery receipt. This is often referred to as “proof of delivery.” If the shipping timeframe has not yet passed, and you have clearly stated on your website or receipt to allow a specified number of days for shipping, presenting that information to the investigating bank can stop the chargeback.
If the customer claims he or she returned the items but never received a credit, let your merchant bank know that you haven’t received the returned merchandise (or the services have not been canceled by the cardholder).
12) Follow Card Processing Protocols
Chargebacks can often be prevented by strictly following basic credit/debit card processing protocols. If a card is swiped or dipped and authorization is denied, do not try to run the card a second time. Swiping or dipping multiple times in an effort to authorize a transaction, manually keying in an entry, or calling for credit approval can all result in a chargeback.
- Magstripe cards may, after several years of use, wear down to the point where your credit card machine can no longer read the information on the card. If this happens and you are forced to manually enter the card data, make an imprint of the embossed card numbers on the back of the receipt. A chargeback done on a manual entry can be lost if there is not an imprint on the receipt.
- If you have to call for authorization, be sure to record the authorization code, date, time, credit representative’s name, and transaction dollar amount authorized.
- Never estimate transaction amounts. This problem is more likely with tip inclusion in restaurants and other industries where tipping is customary.
- To avoid duplicate transactions, make sure they are only entered once and then completely voided if they are incorrect before reprocessing.
- When submitting sales receipts to your bank, ensure that only one copy is submitted. Also, don’t send a copy to two different banks. Multiple copies of sales receipts can result in duplicate billing and (obviously) a chargeback.
- Ensure that your credit card transaction receipts are deposited promptly. Consumers should see the debit on their account within a reasonable time after the sale, not several months later.
- When necessary, use the Address Verification System (AVS). This is particularly important for eCommerce, mail order, and telephone sales. Note that many providers charge a small fee every time you use AVS. However, it’s a fraction of what a chargeback will cost you.
- For card-not-present transactions, ensure that you collect the CVC2 and CVV2 card verification numbers. This is the three-digit security code on the back of the customer’s card.
How To Deal With Chargebacks Effectively
When responding to a chargeback, it’s imperative that you act as quickly as possible. There is a time limit in each step of the chargeback resolution process, and delayed action on your part can result in a chargeback loss. Remember that you’re already starting behind the power curve, as you will be the last party involved in a chargeback to receive notice that it has occurred.
A quick response can also resolve consumer misunderstandings. For example, if a customer says he or she never received credit for a return, you can quickly provide proof of the specific day the credit was issued. This action can resolve a chargeback in your favor or even prevent one from being filed if you can communicate with the customer before they resort to filing a chargeback.
How To Fight Chargebacks With Information
One of the best ways to fight chargebacks is to arm yourself with information. In reviewing the tips we’ve offered above, you should realize that you will need to maintain meticulous records of every transaction to minimize your chances of losing a chargeback investigation that you should have won. You probably already realize that detailed record-keeping is an essential requirement for any business owner, and protecting yourself against chargebacks is just one more reason to do so. Fortunately, many of the integrated, cloud-based payment processing systems offered by merchant service providers today will automate most of this task, minimizing the need for paper records.
While we recommend responding quickly to all chargebacks, we don’t believe you should fight every chargeback tooth and nail. Remember, the rules for chargebacks are deliberately slanted in favor of consumers, and you’re likely to lose over 80% of the time. If you can tell from the circumstances surrounding the chargeback that you’re not likely to prevail, it’s often better not to waste time and money fighting what will surely be a losing battle. Save your efforts for the situations where you know you can prevail and have the evidence to prove your case.
Lastly, if you know you’ve made a mistake, own up to it and accept the chargeback. We are all human, and people make mistakes. If you receive a chargeback for a non-matching account number, and you know that you keyed in the number incorrectly or wrote it down wrong on a telephone order, accept the chargeback. The same can be said for an incorrect dollar amount. As a merchant, you want to maintain an honorable reputation. That may occasionally involve admitting when you’re wrong and conceding the chargeback.
Seeing Too Many Chargebacks Lately? Look For Trends & Revisit Your Policies
For most merchants, chargebacks will be a rare inconvenience that doesn’t have a significant impact on their business. However, other businesses — particularly high-risk endeavors — will have to deal with them much more often. If your business experiences a high number of chargebacks, or if you’ve suddenly started to see an uptick in the number of chargebacks being filed against you, it’s time to figure out what’s going on and try to put a stop to it.
You’ll want to analyze every bit of information available to you to determine whether there’s a pattern behind your increased chargeback rate. If you can “connect the dots” successfully, you can identify practices and policies that need to be improved immediately. Review all of the tips we’ve discussed above, and see if there are any ways that you can improve your performance in any of these areas. Remember, if your overall chargeback rate gets too high, it can have a very negative effect on the cost and stability of your merchant account.
Preventing Chargebacks Is All About Being Proactive
While merchants are probably never going to like chargebacks due to their added expense and the effort required to respond to them, they make sense from a public policy perspective. Consumers need to be protected, and as a merchant, remember that you’re often a consumer, too. Chargeback rules encourage merchants to be honest and have fair return policies. They also discourage merchants from selling substandard goods or services. This is particularly important as more and more commerce is conducted online, where the consumer doesn’t have the opportunity to inspect goods physically before making a purchasing decision.
At the same time, chargeback fraud on the part of dishonest consumers is a growing problem. It’s currently too easy for a dishonest customer to claim that they never authorized a purchase while quietly keeping the goods they’ve essentially received for free. As a consumer protection measure, the existing chargeback system today doesn’t adequately take the possibility of customer-based fraud into account. With consumer-based fraud on the rise, however, we can only hope that the credit card associations will modify their chargeback policies in the near future to deal with this problem.
Until that happens, your best bet is to avoid suffering a chargeback in any way you can. The steps we’ve outlined above will help you minimize the possibility of a chargeback resulting from an error on your part. We also encourage you to keep an open line of communication between your business and your customers. Let them know that they should come to you first before resorting to contacting their credit card issuer for a refund. While having at least an occasional chargeback is an unavoidable part of doing business, you should be able to minimize the frequency of chargebacks you have to deal with by following the preventative steps we’ve outlined above. Good luck!
A chargeback is when a customer who has purchased an item or a service by credit card decides to dispute the charge by approaching the card issuer directly, rather than going to the merchant. Since the outbreak of Covid-19, chargebacks have increased significantly.. This is due to a sudden change of circumstances affecting credit card purchases, most commonly involving restaurants, pubs, cafes, theatre, sporting events, travel and hotel accommodation.
Chargebacks can significantly affect your business if they are not managed effectively. Not only do they incur a chargeback fee which can be between £5 and £15 in addition to the full transaction amount being refunded to the cardholder, but they can affect the level of fees that your business will be asked to pay for accepting credit cards, and in extreme circumstances an excess of chargebacks can lead to the withdrawal of the credit card provider’s service. Chargebacks are distracting and if they become protracted they can create reputational harm to the business from the cardholder.
The chargeback process should serve as an escalation process in the event that a merchant and a customer are unable to agree. However in practice this is not always the case. The stages of a chargeback are as follows:
1. The customer contacts the card issuer to tell them which transaction they want to reverse
2. The issuer investigates the claim to verify what the cardholder is saying
3. If the issuer agrees they will recover the money from the merchant’s account and provide a conditional refund to the cardholder, and advises the acquiring bank, who in turn advise the merchant
4. The merchant can review the issuer’s decision and choose to contest it by submitting their own evidence to support their position, for example a delivery signature. This goes back to the acquiring bank, and then on to the card issuer.
5. The card issuer evaluates what each side has said and if the merchant’s case is considered more persuasive than the cardholder’s they will reverse the conditional refund, concluding the chargeback.
6. However if the card issuers finds in favour of the cardholder the merchant can pursue the matter further and ask for it to be reconsidered, and provide further evidence if it is available.
7. The final decision in favour of one party or the other, which is made by the card scheme rather than the issuer, cannot be challenged further, other than through the process of bringing the matter before a court.
It’s also important to note that some customers will both request a refund and pursue a chargeback, which can result in a double charge against your merchant account. Whilst there are mechanisms to recover the second charge, the better approach is to take an attentive and proactive approach to refunds. If the customer suggests that they have already spoken to their card issuer then it is sensible to contact the issuer to establish the status of the claim before issuing a refund directly.
Chargebacks are far more common in online transactions where there may be a number of parties involved in the transaction and the delivery process, than in physical stores where an item can be seen and inspected before it is paid for and taken away. Chargebacks can take place for many reasons, such as because an item has been wrongly described by the merchant, because the item has not been delivered, because a subscription has auto-renewed when the customer had intended to cancel it or when a customer’s card has been used fraudulently
It is unlikely that a merchant will be able to avoid chargebacks entirely, although there are ways to minimise them. Issuing a refund, if it is warranted, is a far quicker and more cost effective route to resolving an issue and maintaining a customer’s trust. However there will be occasions where the customer goes directly to the card issuer in the belief that it will be simpler, or easier to make their case.
It is important to be as full and frank in your product descriptions, and your terms and conditions of sale, as possible. It is also beneficial to be as open and available to your customers as possible to discuss any concerns they may have, and through as many communication channels as you can support, such as email, phone.
The only way to fight back against fraud charge-backs is to only offer Zelle. That’s what we did and it was best decision our business ever made. Product demand is strong enough that we don’t need to offer credit card as payment option. Our life is exponentially better now. We still deliver an amazing product and great customer service but we refuse that play that silly game of charge backs because buyer wanted something free.
I am curious as to why we merchants are penalized regardless. We have to pay the chargeback fee even when we “win”. Who decided that?! The “losing” party should be charged the fee – could eliminate some fraudulent chargeback attempts by unreasonable customers. Who could start the ball rolling to get this policy change in motion?
This comment refers to an earlier version of this post and may be outdated.
Hi Melissa,
Chargeback fees are something that you have to pay to your provider to compensate them for the time & money they have to spend investigating the chargeback and representing you. It’s like hiring a lawyer – you have to pay them whether you win or lose your case. CDGcommerce is the only provider we are currently aware of that will refund your chargeback fee if you prevail. Providers really don’t have any mechanism for going after a customer for chargeback investigation costs, short of filing a legal action against them. Unless the underlying transaction was for a really large sum of money, this is not going to be economically practical.
This comment refers to an earlier version of this post and may be outdated.
Every chargeback I’ve received has been a fraudulent attempt by the consumer. I provide a service where at the end of the documentation is a signature stating that the job was done to completion.
I’ve always have proof of services via contract and a long drawn out explanation.
I’ve actually had physical proof, texts messages citing why the consumer is upset. I’ve had underlined policies and procedures highlighted to let the other party know that the consumer is going about their complaint the wrong way.
I’ve done everything possible that would be a slam dunk in a mediation setting or court of law and I still get the report back that I’ve lost. This has changed since 2014. I use to be able to send a simple scan of an invoice with signatures.
I think that it’s negligence one one parties part to read my rebuttals because they come highly loaded with facts and visual proof. Sometimes I win, but the times in which I lose, you can tell that no one bothered to read my explanation.
This is where I’m seeking some type of legal help or something. The credit card issuer’s identity remains hidden and protected.
This comment refers to an earlier version of this post and may be outdated.
So what do you do when you lose a dispute? I have a situation that just happened and I submitted 8 pages of documents in my favor, should have been a slam dunk, but I lost. Now what can I do?? My merchant account is worthless to help me.
How do I, as a merchant go about fighting a chargeback that is already deemed not eligible for representment because at time of purchase, an EMV chip card was presented at a non-chip capable terminal? What other recourse do I have to recoup the cost of the goods purchased? Please advise.
Sincerely,
Fran
This comment refers to an earlier version of this post and may be outdated.
Hi Fran,
Thanks for your question. The EMV liability shift means that merchants are liable for a fraudulent transaction if they process an EMV card with an old, magstripe-only terminal. However, chargebacks aren’t necessarily all fraudulent. Without further information as to why your customer filed the chargeback, we can’t say if there’s anything else you can do in this situation. Nonetheless, we strongly encourage you to upgrade to an EMV terminal ASAP to prevent this from happening again. Take a look at Do You Really Need An EMV Chip Card Terminal? for information on why this is so important.
Hope this helps you out, and best of luck!
This comment refers to an earlier version of this post and may be outdated.
Is it possible to transfer the liability to the merchant provider software if they didn’t use proper security measures, therefore, allowing the fraud transaction to go thru?
This comment refers to an earlier version of this post and may be outdated.
Hi Sylvia,
The answer to your question is no, unfortunately. If you’re dealing with a large number of chargebacks as a result of fraud you, might want to look at implementing additional security features on your website, even if it means having to look for a new payment processor. If you’re taking in-person sales, using a chip card reader vs. a card swipe is also an important choice. Ultimately, no system is flawless and merchants also have to accept the potential for fraud as part of the cost of doing business. We hope some of the tips in this post can help you do just that!
This comment refers to an earlier version of this post and may be outdated.
Hi. I work for a large SaaS (online subscription) company. We currently do not respond to any disputes/chargebacks that we receive because I think the company sees the amount as insignificant compared to its over all revenue. However, we were flagged by Visa for an early warning because of the number of chargeback counts. Will responding to disputes with compelling evidence strike out that chargeback count if its in our favor or the count remains? Do you think it will do the business good if it just continues to not respond to any of the disputes/chargebacks it gets? Thanks
This comment refers to an earlier version of this post and may be outdated.
Hi Krys,
We definitely recommend responding to all chargebacks, but not necessarily fighting every one “tooth and nail,” as the article explains. Responding is in your best interest, and we would discourage ignoring them. Hope this helps, and best of luck!
This comment refers to an earlier version of this post and may be outdated.
Can a chargeback be initiated after 160 days
This comment refers to an earlier version of this post and may be outdated.
Hi Brandon,
The short answer is no, however, every card network has their own separate rules. In general the maximum allowable time for a consumer to file a chargeback is 120 days (less in some circumstances). The merchant then has 30 days (or less, again depending on the circumstances) to file a response to the chargeback. That being said, that doesn’t mean a customer might not try it anyway, and potentially be considered due to a special circumstance. Hope that helps!
This comment refers to an earlier version of this post and may be outdated.
Great article, I learned a lot. I just wanted to to clarify something. If I have an e-commerce store that sells out of its inventory due to unprecedented demand but want to keep selling. If I put a disclaimer on the website, product page and in the confirmation email that we are out of inventory would that protect the company from getting chargebacks? Thank you!
This comment refers to an earlier version of this post and may be outdated.
Hi Wilson,
We don’t know much about this topic, but our limited understanding is that an out of inventory disclaimer would not prevent customers from filing a chargeback if they got tired of waiting for an item to come back into inventory. It might discourage them from filing one, but it would probably also discourage them from placing an order in the first place. Setting up some sort of waitlist may be a better option. Best of luck!
This comment refers to an earlier version of this post and may be outdated.
This happened to me. A $3,000 chargeback. The merchant services company stated they did the second presentation, since it was an ecommerce transaction through their own portal, I don’t even have the guys credit card number, etc. The merchant services company has been very reluctant to help me or talk to me. Huge company out of San Francisco. So, I am screwed out of $3,000.
This comment refers to an earlier version of this post and may be outdated.
This is a great article thank you. I have a situation where we have travel retreats and a specific leader in their filed (ie: yoga) runs the tour. In the conditions it clearly states that in the unlikely event the leader cannot attend she/he has the right to replace themselves. It is also states that under no circumstances is chargeback permissable against the merchant taking payments on behalf of the leader and her/his business.
If the participant signs and accepts that, is this enough to override if a client still trys to claim a chargeback? The tour is still running but with another leader.
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Hi Kecci,
Unfortunately, merchants cannot force their customers to give up their right to file a chargeback. In this case, if a customer is being forced to sign away their right to file a chargeback as a condition of being allowed to participate, it’s very unlikely that the bank investigating the chargeback will decide in the merchant’s favor by upholding this agreement.
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I have a customer that bought a high-end item in person. Three months later he is not satisfied. I offered a full refund on return of the item. He said he would return it. A week later he has issued a credit card chargeback. He has not returned the merchandise. If he gets the money back with no return I feel as if he stole it. I don’t know any reason other than wanting something for nothing as to why one would issue a chargeback when the merchant has no problem refunding the money. If anyone has any advise I would be interested. Thank you for your time. Sincerely,
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Great article. As a merchant services provider I would like to point out how important it is to only accept EMV Chip credit cards in your business. Any customer who swipes their credit card at your business can call their bank immediately and dispute the charge and win, whether they placed the order or not. If you cannot Chip the card, then take cash only.
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We own a small business and have been processing credit for 6 years. We switched processor 7 months ago and all seemed fine. This month we had a consumer call and say the payment they made never went through on their card. We checked and our machine was holding all transactions and not sending the batches in to be processed. We should have noticed but did not. This had been occurring for 4 months. We submitted our batch and 47 transactions in amount of over 5,000 are “late presentation”. Do you have any advise? Our processor said we will be charged a fee per transaction and the credit card bank can choose not to pay. Do you know if they choose not to pay if we can contact our consumers to see if they make payment? Thanks for your help.
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I recently provided services and accepted an unsigned credit card. I do have a valid government ID documented, swiped card with authorization, and even a copy of the ID. Can these be used in lieu of a signed card. It seems from the merchant agreement that I am not supposed to accept unsigned cards. Please advise.
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While you are supposed to only accept signed cards (and compare the customer signature on the receipt to the one on the card), the reality is that most merchants do not do this. It’s a protocol that is designed to prevent fraud, but no one is going to check to make sure you are doing it. If they supplied government ID, that would be a sufficient alternative in my opinion. And the fact that you documented the ID will protect you if a chargeback does occur.
Hope this helps,
Tom
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Well, the issuer has stated that this transaction was non-compliant because I accepted an invalid credit card. The merchant agreement clearly stipulates that I must check all the card security features, and the fact that I did not verify if the card was actually signed (the amount exceeded the non signature requirement) is a clear breach of the merchant agreement.
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Great article. Question. I am a merchant that has signed agreements with my customer to put them on monthly auto-debit programs for the products I sell. When a customer monthly amount is declined for insufficient funds, I am able to do a force charge, where I am still able to receive the funds owed. Does this follow all the correct rules?
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Hi Patrick,
I’m not aware of any way to clear a payment if the money is not in the customer’s account, except at their bank’s discretion. Maybe you are referring to a resubmission (“re-presentment”) of the transaction? This can sometimes be done in the case of NSF, although there are limitations to the number of times a transaction can be resubmitted after it bounces, I believe. There are also time limitations with this. And it will only go through later if funds are made available.
But what you are describing does not violate any rules as far as I know.
-TD
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