Questions & Answers to help save the day.
A chargeback is when a customer disputes a transaction.
As soon as the chargeback is initiated, a merchant must reverse the cost of the transaction and pay a chargeback fine, which can vary from $25 to $100. Moreover, MDR and transaction processing fees are not refunded to the merchant.
A customer might initiate a chargeback for a number of reasons. Here are some of the most common ones:
A merchant service that authorizes transaction processing is normally provided through an e-commerce application service provider.
An entity that provides authorization and/or clearing and settlement services on behalf of a merchant or an acquirer.
An acquiring bank is a type of bank that offers merchant accounts for e-commerce businesses to accept, process, clear and settle transactions.
A merchant account is a bank account that enables the holder to accept credit cards for payment.
The chargeback ratio is the ratio between the number of chargeback transactions and the total amount of transactions. It is important to keep the chargeback ratio at less than 1 percent for Visa and less than 1.5 percent for Mastercard. There is also a count limit for chargeback transactions: 100 for Visa and 150 for Mastercard.
Yes. Whether a chargeback is won or lost doesn’t matter. It will still be counted as a chargeback and affect your chargeback ratio.
If the chargeback ratio or chargeback count is higher than normal, a merchant will fall under a chargeback monitoring program, which lasts 12 months and allows a merchant to fix the chargeback situation. However, while under the program, chargeback fees will be 2-3 times higher and additional review fees will also be applied.
If both the chargeback ratio and count exceed the normal limits, the merchant account will be closed and all funds will be frozen for 6 months.
Normally, your acquiring bank or payment service provider will notify you of each chargeback that needs to be presented.
Chargeback presentment is the way to "fight" the chargeback: to prove transaction legitimacy and purchase usage in order to win the chargeback.
Yes, a merchant can prepare resentment cases. However, it requires a lot of manual research—one chargeback presentment case can take up to 20 minutes to prepare. Therefore, many merchants outsource this work to professionals such as Chargeback Hero.
A chargeback fee is a fine for a chargeback. It varies from $20 to $100.
A pre-compliance chargeback is used when a transaction violates a network association rule. In such a case, a chargeback is initiated by the issuer or processor, usually due to technical issues. Chargeback management falls on your processor; however, you need to ensure your processor is responding in a timely manner.
A return item chargeback can be used to represent either of the following:
A customer dispute that occurs on PayPal's payment platform is called a PayPal dispute. All disputes are managed through the PayPal Dispute Resolution Center.
Any chargeback that is processed through the Visa card network.
Any chargeback that is processed through the Mastercard network.
With friendly fraud chargebacks, the customer is a real buyer who, in most cases, used the merchant’s product or service, but was dissatisfied with its quality or performance. They did not get money back, but instead disputed the transaction on their card.
Chargeback fraud occurs when a customer intends to commit fraud against a merchant. Friendly fraud, on the other hand, occurs because of a misunderstanding or because the purchase did not meet the customer's expectations. In both cases, the initial transaction was authorized by the customer, even if they later disputed the transaction.
Real fraud happens when the card details of the customer have been stolen, so the transaction was not authorized by the real cardholder. For both friendly and chargeback fraud, the transaction was authorized by the cardholder. Again, the difference between friendly and chargeback fraud is that chargeback fraud involves an intention to defraud the merchant.
It is quite hard to identify and prevent friendly fraud before a chargeback occurs. However, these tips can be useful:
Here are some tips and suggestions to help you prevent real fraud:
Yes. It is important to show your acquiring bank that you deal with all types of chargebacks received. If you win a chargeback, it will not improve your chargeback ratio. On the other hand, you will be able to prove the legitimacy of a purchase and receive back the cost of the transaction and all associated chargeback fees.
A chargeback scheme is another name for chargeback fraud: it is the misuse of a customer's chargeback rights to retain both the goods or services rendered as well as the transaction amount.
A company is considered a high-risk business based on two conditions: whether it operates within a high-risk industry and whether the risk of financial failure exists. The following businesses are normally considered high-risk:
The MCC is a four-digit number used to classify the business by the type of goods or services it provides.
A chargeback reason code is a special code that differs by card network and describes the chargeback reason.
The information for all terminated merchant accounts is put into a common database, which is called the MATCH (Member Alert to Control High-Risk) list or Terminated Merchant File (TMF).
The HBRCMP is a chargeback monitoring program designed by the Visa card network to identify merchants whose chargeback ratio is over 1 percent and who have more than 100 chargebacks per month. A merchant falls under this program after only 1 month of unusual chargeback activity. The program lasts for 12 months, or until a merchant recovers their chargeback situation. While under the program, chargeback fines are 2-3 times higher than normal and some review fees are applied.
A high-risk merchant account is a type of account associated with higher chargeback and fraud ratios due to the business activity performed (this includes businesses with a subscription model, business where it is hard to prove that products have been delivered, dating/adult businesses, gambling, pharmacies and so on).
Normally high-risk MID MCCs are 5122, 5912, 5962, 5966, 5967, 5993, 7995. Other MCCs can be classified as high-risk based on the chargeback or fraud ratio.
In accordance with the new Visa Chargeback Monitoring Program—implemented in June 2016—500 chargebacks and a 2 percent chargebacks-to-sales ratio are allowed per account.
Before submitting a chargeback, a customer must file a pre-arbitration case in an attempt to resolve the dispute. A merchant has 10 days to respond before the arbitration case is filed. Pre-arbitration is also known as second chargeback or second presentment.
An arbitration chargeback is submitted by the issuer when the evidence provided by the acquirer in the second presentment is deemed insufficient. Merchants incur a $250 fee when a dispute escalates to arbitration.
Normally, acquirers give a merchant 10 days to respond to pre-arbitration chargebacks. However, there may be some exceptions.
Chargeback presentment is the process of proving the legitimacy of a purchase in order to close a chargeback in a merchant's favor.
It is important to include the following information in the chargeback presentment case: transaction data and amount; customer's billing information; purchase confirmation email; purchase delivery logs; customer's logs in a back office (if the merchant provides a back office); correspondence with a customer support team (if one exists); copy of a refund policy and a copy of the terms and conditions. If the chargeback is given a chargeback reason code, you will probably need to include AVS and CVV confirmation.
The chargeback presentment process is quite complicated and time-consuming. It can take up to 20 minutes to prepare one presentment case. Therefore, it is better to give this work to professionals such as Chargeback Hero.
Usually, chargeback presentment documentation is sent to the acquiring bank for review. However, if you have a payment service provider as an intermediary, you should send the documentation to your payment service provider first.
No, a chargeback will not be avoided. In addition, you may be charged double, because your account will be debited for both the chargeback and the refund.
It depends on how fast you submit the case, how fast the payment service provider takes to review it and pass it to an acquiring bank, and how long the issuing bank takes to consider the case. Usually, it takes 1-2 months to know the resolution of a chargeback.
Most acquiring banks and payment service providers do not provide reports or notifications on chargeback resolution, so you have to check your settlement statements in regards to the credited amount.
It is quite complicated to see which chargebacks were won and credited. However, Chargeback Hero allows you to track this information in a real-time.
If you accept a chargeback, it means you approve it and the chargeback will be automatically closed in the customer's favor.
If a chargeback is lost, the customer will get money back and the chargeback will be closed in the customer's favor.
A chargeback reversal means that the chargeback presentment documentation was approved by the issuing bank and funds have been credited to the merchant account. However, a customer has additional dispute rights: they may dispute the transaction a second time and funds will again be debited from the merchant account.
A reversal denial means that the merchant lost the chargeback.
The retrieval request is a request sent from an issuing bank to a merchant to provide specified transaction details within 10 days.
If you do not respond to a retrieval request, it will turn into a chargeback.
Usually, the faster you present a chargeback, the better your chances of winning. Some banks offer up to 45 days to present a chargeback. However, it is best to present as soon as a chargeback is received.
A customer typically has 180 days to dispute a charge. In some case, this limit can be extended.
It is a long, complicated process and usually takes 1-2 months. In some cases, it may take even longer.