What is a Chargeback?
A chargeback is a process where a credit card holder disputes a transaction and requests their bank or credit card issuer to reverse it. This can happen for several reasons.
A chargeback is a transaction dispute sent from a cardholder to their issuing bank. The origin of the cardholder’s dispute could be the result of fraud, a credit for a merchandise return that was issued but never received, a disagreement over a charge, or because the cardholder never received the goods or services they ordered
Stages of a Chargeback
- Retrieval Request – A request for a copy of the sale. No monetary impact to the merchant.
- Chargeback – A reversal of a credit card sale disputed by the cardholder or card issuer. Money is debited from Merchant and credited back to the cardholder.
- Reversal –
- Reversal acceptance – After the association reviews the rebuttal and agrees with the merchant, funds will be reversed back to the merchant. A reversal acceptance letter is sent to the merchant and funds are credited.
- Reversal denial – After the association reviews the rebuttal and believes that issues regarding the chargeback were not addressed, they will issue a reversal denial.
- Pre-arbitration – A continued dispute from a cardholder or issuer. A pre-arbitration letter is sent and requires the merchant to respond within a set period (usually a few days). If the merchant chooses to proceed, they must agree to pay the cost of the arbitration if they lose the case. If the merchant wins, the cardholder/issuer will be responsible to pay the filing fee.
Chargeback Flow
Resolution Process
To learn more about chargebacks and the resolution process, please refer to the below resources.
Tips for Preventing Chargebacks
In addition to chipping away at your profits, chargebacks can translate into extra processing time and costs. That’s why it’s important to carefully track and manage all chargebacks you receive and take steps to prevent them from happening in the future. Most chargebacks can be prevented by clearly communicating to your customers and by following best practices for processing transactions.
Tips to help prevent chargebacks
- Use a credit card terminal or mobile card reader that supports EMV chip cards
- Insert or swipe the card whenever possible
- Obtain a valid authorization on every transaction
- Do not complete a transaction if the authorization request was declined
- If you receive a “Call” response for an authorization, call the authorization center
- If you must manually key the card number, make a manual imprint of the card using a manual imprinter with your merchant plate
- Clearly communicate your return and refund policies to your customers
- If a customer order is delayed, communicate the status to the cardholder
- For card-not-present transactions, verify the cardholder’s address using the Address Verification Service and the three-digit CVV code on the back of the card
- For card-not-present transactions with large ticket sizes, only ship merchandise to the billing address
- Ship merchandise to the customer before you charge the card
- Respond to all retrieval requests and chargebacks immediately upon receipt
How to Handle Chargebacks?
What should you do if you receive a chargeback notification?
- Send all necessary documentation as outlined in the letter you received by the DUE DATE in the letter
- Follow up in 24 hours to ensure documentation was received
- For questions about an active or closed chargeback, contact Merlin at 866.637.5467
- Provide the case number on your letter
- Provide your Merchant Number (MID)
Common reasons for chargebacks
- Dissatisfied with merchandise or service
- Never received merchandise or service
- Return/exchange policies not clearly visible
- Unauthorized/fraudulent charges
- Recurring charge does not stop
- Unexpected currency conversion rates
- Transaction being re-entered with an invalid/expired authorization code
Tips to help reduce chargebacks
- Excellent customer service
- A customer-centric return policy
- Detailed, accurate and realistic product and service descriptions and expectations
- Employ best practices for card-present transactions (ask for ID and compare signatures)
- Employ best practices for card-not-present charges (require CVV/CID validation)
- Ensure devices are EMV ready – chip cards must be inserted in chip reading devices