Chargebacks: What Are They and How to Deal with Them

Posted on 9/15/17 12:47 PM by Yuri Emond

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In the field of e-commerce, there are several situations that can lead a customer to challenge his/her transaction. This may include misuse of the card (fraud) or, in some cases, dissatisfaction with service offered.

This situation is known as chargeback. It is the customer’s responsibility to request a chargeback and provide good reasons to avoid additional charges.

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Here’s what we’ll cover in this article:

  • What is a Retrieval Request?
  • What is a chargeback?
  • How do you know if one of your customers has applied for a chargeback?
  • Why does a chargeback occur?
  • How to reduce chargebacks?
  • Challenging a chargeback.

What is a Retrieval Request?

Before going any further, it is IMPORTANT to know the difference between a Retrieval Request and a chargeback.

A Retrieval Request is when a cardholder questions the transaction, it will seek the maximum information from its bank before proceeding to a chargeback. This term can also be called copy request, first request, or a request for information (RFI).

Your bank or credit card processor typically takes care of responding and providing the necessary information to customers when a request is made. From this point on, there are no funds that have been reversed in the customer’s account.

Note that some banks will skip the request for information and will directly request a chargeback.

What is a chargeback?

On the other hand, a chargeback is the reversal of a credit card transaction arising from a specific problem. This is not a desirable situation since this causes loss of income, additional fees, and sometimes disciplinary measures can be taken by credit card services.

Note: a customer has up to 6 months after the transaction to make a chargeback request (in most cases).

How do you know if one of your customers has requested a chargeback?

There are two ways to know if you have any chargeback requests:

  1. There are two types of levies on your statement:
    1. The first showing the amount of the disputed transaction;
    2. The second shows the fees associated with the chargeback.

Note that when you see these transactions, it means that a customer has applied for a chargeback and the issuing bank considers the request as valid (the funds are then transferred to the customer’s account).

  1. If you use Netbanx/Paysafe, from the ON-DEMAND report, it is possible to see the chargeback applications that have been made. Be aware that Netbanx suggests viewing this report a minimum of twice a week to ensure that it does not exceed the deadline to contest.

 

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Note that these reports can usually be automated so that you receive them directly in your email account. 

Why are chargebacks occurring?

There are 5 reasons why a chargeback request may occur:

  1. Fraud, here are the two types of fraud:
    1. Fraud by a third party: Happens when a cardholder’s credit card information is stolen.
    2. First-party fraud: Occurs when a consumer uses either his or her identity or a completely manufactured identity and aims to take advantage of that identity to access credit funds without any intention to pay.
  2. Product quality: Occurs when a cardholder purchases a product/service and receives it in poor condition or the description does not reflect the one indicated on the website.
  3. A customer service problem: Occurs when trying to contact the support service and does not receive any response or the service received is poor.
  4. A reimbursement problem: Occurs when a customer is promised a refund for a specific reason however, no refund is applied.
  5. Payment processing error: Occurs when a transaction proceeds, but should not have been due to reasons such as the credit card had expired.

Please note that this is not the complete list, you can always view this list in the e-commerce merchant rebate guide available here.

How to reduce chargebacks?

Since chargebacks are a thing to avoid, we’ll list a few tricks in order maintain best practices within your business and thus reduce your chances of having chargeback requests.

  • Good practices to follow:
    • Never modify an amount at the time of sale;
    • Always obtain an authorization of the exact amount when paying with a credit card;
    • If the transaction is denied, the customer should not be able to reduce the amount in order to try again;
    • Respond to all requests for chargebacks;
    • You should always obtain the client’s full name, address, telephone number, and e-mail address.
  • Some criteria to respect on your website:
    • Indicate the currency used;
    • Provide a complete description of the goods, activities, etc. and their availability;
    • Display the legal name of the company;
    • Show delivery policies (if any);
    • Display cancellation and refund policy;
    • Make sure the number to reach your support staff is easily accessible.
  • Properly process refunds, i.e. if a payment is made by credit card the refund should be equal to the payment and should be returned on the same card.
  • Certain measures can be taken to reduce fraud, among other things, the CVV number should always be required.
  • Provide good customer service. Specifically, make sure you are reachable and provide support to your customers within a reasonable time.
  • Offer a quality product/service and give explanations that are representative of what you are selling.

Should I challenge each chargeback?

There are certain steps to follow before proceeding with a chargeback challenge. First, it is important to look at the code associated with the chargeback to find out why. You can access this code list in the “Back office User’s Guide”

If you, the merchant, has enough documentation and evidence to support your dispute, you must send all this information to Paysafe within 5 days of the request for the chargeback.

Challenging a Chargeback 

Here’s how to proceed with the challenge:

  1. First take note of the chargeback either via the back office or from an automated report.
  2. If there is a dispute, you, the merchant must assemble as much information as possible to justify your challenge. As mentioned above, from the moment the chargeback request is sent, you have 5 working days to collect this information and send it to to your payment processor. If there isn’t any information sent, the contester (you) will automatically lose your right to challenge. Here are the types of documents to collect:
    1. The cardholder’s information, such as last name, first name, address, card number, CVV, expiration date, phone number, email address, etc.
    2. The description of the products/services purchased.
    3. Any other elements that you consider relevant to your contestation.
  1. Send all documentation to to your payment processor, it is important to put the documentation for the chargeback in 1 email. This should include:
    1. THE ARN number. This is a number that is given by the bank in order to track the transaction.
    2. The transaction number;
    3. Details of the customer’s card;
    4. Chargeback record ID.
  2. Once the e-mail is sent, your payment processor reserves the right to review the documentation - typically within 10 business days. If everything is in order, your payment processor will submit the information to the acquiring bank. On the other hand, if there is a lack of information, they will communicate directly with the contester, you, to inform you of the missing information.
  3. At this stage, the demand for chargeback is analyzed by both banks.
  4. If you, the merchant wins, the amount of the dispute will be credited to you (IMPORTANT: the expenses will not be reimbursed). On the other hand, if you do not win the challenge, you will see an entry for the chargeback in one of your statements.

If you, the merchant, loses your challenge, it is possible to challenge again; however, this can be a longer and costly process.

NOTE: the fees associated to a chargeback is different for each merchant. It is, however, possible to see the associated fees in your contract. 

How long does the process last?

Most payment processors have internal procedures in place to inform their customers of response times based on the life cycle of a chargeback. It is important to know that the issuing bank and the acquiring bank take some time before performing the various tasks associated with a chargeback. For example, a retrieval request can take up to 10 business days to complete.

Here is an example of Paysafe's approximate time:

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Some chargebacks can take up to 30 to 45 days depending on the magnitude of the situation.

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If you ever encounter any problems with this kind of report, contact your credit card processor for more information and support.