What is a Chargeback ?
A chargeback is the reversal of a sale transaction. For merchants, chargebacks can be costly. Merchants can lose both the amount of the transaction being charged back and the related merchandise. Merchants also incur own internal costs for processing the chargeback. Although merchants probably can not avoid chargebacks completely, they can take steps to reduce or prevent chargeback.
How Chargebacks Occur ?
Chargebacks are not always the result of something merchants did or did not to. Errors are also made by merchant banks(acquirers), cardholder banks(issuers) and cardholders. The most common reasons for chargeback include :
- Customer disputes
- Fraud
- Processing errors
- Authorization issues
The Chargeback Life Cycle
- Cardholder disputes transaction.
- Cardholder bank reviews transaction for chargeback then charge it back to merchant’s acquiring bank. (electronically)
- Merchant bank receives chargeback and resolves issue or forwards to its merchant.
- Merchant receives chargeback and can re-present chargeback with related information/ documentation to its acquiring bank. (If merchant does not provide any item, then merchant have to accept chargeback)
- Merchant bank re-presented the information / documentation to card issuer. (electronically)
- Cardholder bank recieves re-presented item and reviews. If the representment documents meet the chargeback conditions; then the card ıssuer re-posts to cardholder’s account. If the representment documents do not meet the chargeback conditions; then card ıssuer submit second chargeback , charge it back to merchant’s acquiring bank again and cardholder receives credit.
Chargeback Dispute Groups
The following list is the Chargeback dispute groups :
- Transaction Not Recognized
- Authorization
- Fraud
- Processing Error
- Cancelled / Returned
- Non Receipt Goods/Services
- Transaction Not Recognized :
Definition : The Cardholder does not recognise the transaction appearing on the billing statement.
Most Common Causes : The merchant store name or location reflected on the cardholder’s billing statement was not correct or recognizable to the cardholder.
Merchant Rights and Supporting Documents : Merchant must provide any documentation or information that would assist the cardholder in recognizing the transaction.( such as sales receipt ; shipping invoice or description of merchandise or service purchased)
- Authorization :
Definition: Merchant failed to follow the proper Authorization procedures.
Most Common Causes :
- The merchant did not obtain an authorization for a transaction or obtained it after the transaction date.
- After a decline or card pickup response, the merchant forced the transaction through without attempting another request.
- The merchant accepted a card after its expiration or “Good Thru” date and did not obtain an authorization approval from the card issuer.
Merchant Rights and Supporting Documents :
- If the merchant obtained an authorization approval code, then the merchant must inform its acquiring bank of the transaction date and amount.
- If the transaction was not authorized, then the merchant must accept the chargeback.
- Fraud :
Definition: The merchant completed the transaction without the cardholder’s permisson and the cardholder states that neither he,she nor anyone authorized by him or her engaged in the transaction.
Most Common Causes :
- The merchant completed a card present transaction without obtaining the cardholder’s signature on the sales receipt.
- The merchant processed a card absent transaction from a person who was fraudulenty using an account number.
- The cardholder did not recognise a card absent transaction on his or her statement due to an unclear or confusing merchant name.
Merchant Rights and Supporting Documents :
- If the transaction was face to face and the transaction has been PIN – verified, the chargeback is invalid.
- If the transaction was card absent transaction then the merchant may send a copy of the transaction invoice, signed proof of delivery and any other information to its acquirer bank. But these supporting documents and informations do not directly prevent chargeback.
- Processing Error :
Definition: A Merchant or an Acquirer processed a transaction incorrectly.
Most Common Causes :
- The merchant did not deposit the sales receipt with its acquirer within the time frame specified in its merchant agreement. (Late presentment)
- The merchant issued a credit voucher but the transaction was posted as a sale. (Incorrect currency or Transaction code)
- The merchant key entered or recorded the account number incorrectly. (Non matching account number)
- The merchant made a data entry error (Incorrect transaction amount or account number)
- The merchant entered the same transaction into the point of sale terminal more than once or created two sales receipts for the same purchase. (Duplicate processing)
- The merchant deposited the credit card sales receipt in addition to the cash,check, or other payment method. (Paid by other means)
Merchant Rights and Supporting Documents :
- If the sales receipt was deposited within the time frame, the merchant must send a copy of the receipt as a supporting documents. (Late presentment)
- The merchant must provide the supporting documentation of the transaction showing that it was posted correctly as a credit to the cardholders account. If not; then the merchant must accept the chargeback. (Incorrect currency or Transaction code)
- If the account number on the sale receipt matches the account number on the chargeback, the merchant must send the authorization log for this transaction. If it does not match then merchant must accept the chargeback and must process a new transaction with the correct account number. (Non matching account number)
- If the transaction amount on the sale receipt is the same as on the clearing record deposited for payment then the merchant must send sale receipt as supporting documentation. If not; then the merchant must accept the chargeback. (Incorrect transaction amount )
- The merchant must provide legible photocopies of sales receipts or any other related supporting documentation that the two transactions are seperate. The receipts should clearly indicate that the two transactions are not charges for the same items. (Duplicate processing)
- The merchant must provide the documents other than the transaction receipt to prove that the merchant did not receive payment by other means for the same merchandise or services. (Paid by other means)
- Cancelled / Returned :
Definition: The merchant continued to charge a cardholder for a Recurring Transaction despite notification of cancellation or the Cardholder received damaged / defective merchandise, or the merchandise / service did not match what was described.
Most Common Causes :
- The merchant was notified to cancel the recurring transaction or that the cardholder’s account was closed but has since billed the customer. (Cancelled recurring transaction)
- The merchant sent the damaged, defective merchandise or not the same shown and described on screen (for internet transactions) / other documentation presented to the cardholder at the time of the transaction. ( Not as Described or Defective Merchandise)
- The merchant did not issue a credit because of its cancellation policy. (Credit Not Processed)
Merchant Rights and Supporting Documents :
- The merchant must provide a record showing that the cardholder did not cancel the transaction. If not; then the merchant must accept the chargeback. The cardholder does not have to supply evidence that received the cancellation notice (Cancelled recurring transaction)
- If the cardholder has not returned the merchandise or cardholder has not cancelled the service and the merchandise or service was as described then merchant must provide specific information and invoices to refute the cardholder’s claims. If the cardholder’s complaint is valid and merchant received the returned merchandise then the merchant must accept the chargeback. ( Not as Described or Defective Merchandise)
- If the cardholder returned merchandise or cancelled servıces in a manner contrary to disclosed return or cancellation policy, then merchant must provide documentation showing that the cardholder was aware of and agreed to policy at the time of the transaction. If the cardholder returns merchandise or cancels services in accordance with your disclosed return or cancellation policy, and ıf the merchant have not already issued a credit, then the merchant must accept the chargeback. (Credit Not Processed)
- Non Receipt Goods/Services :
Definition: A Cardholder did not receive ordered merchandise or services
Most Common Causes : Merchant was unable or unwilling to provide services or Cardholder or authorized person did not receive the merchandise at the agreed-upon location or by the agreed-upon date( Services Not Provided or Merchandise Not Received)
Merchant Rights and Supporting Documents :
- If the merchandise was delivered by the agreed upon delivery date, merchant must provide the documentation to prove the cardholder or authorized person received the merchandise. (such as a delivery receipt signed by the cardholder or a carrier’s confirmation document )
- If the merchandise was shipped after the specified delivery date, then merchant must provide the shipment date with proof of delivery and acceptance by the cardholder.
