A chargeback is a reversal of a financial transaction, generally used when a customer(the cardholder) disputes a charge on her credit card bill.
Usually, chargebacks of customers will happen for one of several reasons:
Remaining chargebacks result from technical and fraud-prevention issues. Technical and fraud-prevention chargebacks will be further explained according to the chargeback codes.
Chargebacks are usually raised within 120 days of the date when the service was to be provided or the product delivered. The complete chargeback process can take up to 75 days.
Whenever a chargeback is initiated, a merchant will receive a code from its issuing bank that gives a reason for the dispute. Once a customer has disputed a charge, a merchant's acquiring bank will begin going through a specific procedure to resolve the issue.
2. The chargeback process
After a transaction is made, a payment card statement is issued. Normally this is the end of the credit card transaction, but maybe an optional retrieval request is available for the customer. Otherwise the customer has 120 days for a first chargeback.
If a customer makes use of the option for chargeback, a first chargeback is made. Once a customer initiates a chargeback, the issuing bank sends the transaction in question back to the merchant's acquiring bank, hereby reversing the sale. The cardholder's account is credited for the amount of the transaction, and the merchant's account has the funds from the sale in question withheld until the matter is resolved.
After the first chargeback, the merchant has a 14 days period to plead its case. The merchant has to provide supporting documentation of the chargeback’s issuance to the acquiring bank within these 14 days. The evidence required will be dependent upon the reason for the chargeback. If this evidence convinces the acquiring bank that a customer was rightfully charged, the acquirer will submit the transaction to the issuing bank a second time.
If the merchant receives a notification regarding a pre-arbitration (VISA) or second chargeback (MasterCard), the transaction has been disputed further. At this stage, the issuing bank can either accept the second chargeback or reject the second chargeback and send the transaction to the card association for final arbitration. If the issuing bank rejects the second chargeback, the merchant has 7 days to inform the acquiring bank about the continuation of the refute of his case.
If the case is still not solved, the card association takes care for the final arbitration. The outcome of this final arbitration by the card association is the final decision.
Another VERY important note: a customer's bank will refund the balance of a disputed transaction as soon as the customer initiates a chargeback. Merchants should NOT refund the customer on their own!
3. Prevent chargebacks
With the cost involved with chargebacks, merchants should better take steps to protect themselves against chargebacks. Some simple proactive steps that can help prevent chargebacks are:
Deliver excellent customer service
Apply security measures
4. Accept or challenge
Accept the chargeback, if:
Challenge the chargeback, if:
5. Challenging a chargeback
Provide supporting documentation to Magnius within 14 days of the chargeback’s issuance:
When sending supporting documentation to Magnius, make sure that:
Note: Never include full card details on the documentation sent for representment
6. Chargeback Fraude
One of the fastest growing types of chargebacks is what's known as "friendly" fraud, when consumers purchase products with the intent of initiating a chargeback in order to get free products.
The person committing the fraud will often claim that a product was not delivered, was not as described, or that they simply did not order a product. This type of fraud is on the rise, and is prevalent for card-not-present transactions.
Unfortunately, chargebacks are one of the "costs of doing business" when accepting credit cards. However, by taking steps to ensure that customers are informed and satisfied with their purchases, and putting measures in place to prevent credit card fraud, merchants can greatly reduce exposure to chargeback risk.
7. Costs of lawsuit
The chargeback process costs merchants money in the form of chargeback fees, and businesses have to pay regardless of whether or not they win the dispute.
Merchants have to pay the chargeback fee even if the cardholder's claim is rejected, and even if the chargeback is a result of fraud or identity theft.
The costs for the merchant if the card scheme’s arbitration committee decides the merchant is liable consist of the disputed amount and a €540,00 handling fee. The costs for the merchant if he accepts liability before ruling consist of the disputed amount and a €270,00 handling fee.
8. Chargeback abbreviation/codes
Visa Chargeback Reason Codes
MasterCard Chargeback Reason Codes
Abbreviations
9. Magnius Support
If the merchant encounters complication, a team of experts from Magnius is available to fully support the merchant in the chargeback process. For questions about the chargeback process, the merchant can contact Magnius: info@magnius.com
