Chargebacks

Official 2020 Chargeback FAQ

Blog Image - Chargeback FAQ


They don’t teach you about chargebacks in school, but understanding the rules, causes, and consequences of chargebacks can have huge implications for the health and profitability of an ecommerce business. Myths and misconceptions about chargebacks abound, and it doesn’t help matters at all that the landscape of the card payments industry is under constant change.

In 2020 we're making it a priority to answer every merchants burning questions about chargebacks: how to fight them, how to prevent them and how to use the data my chargebacks generate to enhance my business?

Where chargebacks are concerned, these are the most commonly asked questions on the internet.


*Please note "Can I go to jail for chargebacks?" is one of the most frequently asked questions. If that isn't clear indication the average consumer understands "Friendly Fraud" to be wrong, I don't know what is.

 



What is the definition of a chargeback?

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyA chargeback is the return of money to a payer, typically a consumer who has made a purchase with a payment card. Specifically, the chargeback is the reversal of a money transfer from the consumer’s bank account, line of credit, or credit card.
Chargebacks are ordered by the bank that issued the consumer’s payment card. Sometimes the bank will do this on their own when fraud or an error is discovered, but most often they occur because the consumer has contacted the bank to dispute a transaction for some reason. You may hear “dispute” and “chargeback” used interchangeably, but not every dispute will result in a chargeback, although many do.



How does a chargeback work?

The dispute process begins when a customer contacts their bank to question or challenge a transaction posted to their account. The bank may attempt to gather more information from the customer to determine if a chargeback is appropriate.
In most cases, if the customer insists, the bank will proceed with the chargeback. They will usually issue a provisional credit to the customer and contact the merchant’s acquiring bank to notify them of the chargeback and forcibly initiate a transfer of money back from the merchant’s account.
If the merchant accepts the chargeback, ignores it, or fails to contest it with the right evidence, the chargeback will be finalized and the provisional status of the credit issued to the customer will be lifted, fully reversing the transaction under dispute.
 


What is a chargeback fee?

New call-to-actionChargeback fees are assessed to merchants by their acquiring banks. The chargeback fee is intended to cover chargeback-related costs accrued by the acquiring bank. Fees may vary depending on the card network, the banks and payment processors involved, and other factors.
Ultimately, however, chargeback fees are the main reason why the true cost of a chargeback is much greater than the original transaction amount. When all fees and attendant costs are factored in, every dollar lost to a chargeback costs the merchant an estimated $2.40.
In other words, if you sell a product for $100 and the customer succeeds in disputing the charge and receiving a chargeback, you’re not out $100—you’ve effectively lost $240.



Can you go to jail for chargebacks?

Yes, absolutely you can go to jail for fraudulent chargebacks! Don’t charge something back without excellent cause because you can and will be caught eventually. Fraudulent chargebacks are just another form of theft after all.
Merchants can (should and do) take consumers to court over fraudulent chargebacks, and many jurisdictions will pursue criminal charges for chargeback-related fraud.



Why did I get a chargeback?

When a customer requests a chargeback from their credit card issuer, it means they’re disputing a transaction and asking the card issuer to refund their money instead of the merchant with whom they made the purchase.
Chargebacks were invented to give customers recourse against unscrupulous merchants who take their money without delivering the promised goods. In ecommerce, chargebacks serve an important purpose in giving consumers confidence that they can shop online without worrying that hackers or scammers are going to steal their payment credentials or defraud them.
Unfortunately, many consumers abuse the chargeback process by disputing charges that could be handled directly with the merchant. The banks are supposed to encourage consumers to contact the merchant before disputing a transaction, but they have no way of verifying that the consumer has actually done so.
Here are some common chargeback reasons:  
  • Never received the product ordered
  •  Received a damaged or defective product
  • Payment card was used without permission
  • Transaction not recognized
Merchants should fight back against illegitimate chargebacks whenever possible. Chargebacks used for their intended purpose—as a remedy against fraud—cannot be fought effectively, but when consumers dispute valid transactions in an attempt to avoid dealing with the merchant directly, that’s known as “friendly fraud” and merchants can, and should, contest these chargebacks and present the bank with evidence that the transaction was carried out properly.



How can I fight chargebacks effectively?

To fight a chargeback, you have to resubmit the charge to the bank within the timeframe allowed by the card network. This is called “representment,” and it must also include submission of the documentary evidence that shows why the transaction should be upheld as valid.
If the bank reviews the evidence and finds that the transaction was processed and authorized properly, the money will be returned to the merchant’s bank account and the consumer’s provisional credit will be revoked. This is not necessarily the end of the chargeback process—banks, consumers, and merchants can appeal to the card network for arbitration in the event of an unsatisfactory decision. This will incur more fees, and the card network’s decision will be final.
Most chargebacks shouldn’t be ambiguous, hard-to-decide cases. The right evidence should put an end to any illegitimate chargeback, and there is no evidence a merchant can present that will enable them to retain a fraudulent transaction. That said, our experience has shown us that there are some best practices merchants can follow to increase their chances of succeeding at representment.
  • Timing matters. The more quickly you can respond to a chargeback, the better your chances.
  • Be proactive. By monitoring your customer and purchase activity, you can see patterns emerging in terms of product returns, sales numbers, and issuer charges. This can help you identify transactions that have a higher likelihood of turning into chargebacks, and you can document and preserve evidence accordingly.
  • Know the facts about chargebacks. Don’t waste time fighting chargebacks you can’t win. Don’t submit extraneous evidence that won’t help your case. The bank employees who review representments aren’t going to spend hours playing detective over your claims—your argument against the chargeback must be concise, specific, and backed by the right evidence.
  • Know your reason codes. Each chargeback notification will come to you with a reason code attached. These codes tell you exactly what type of chargeback you’re dealing with.
  • Attentive, proactive customer service can be a great way to prevent chargebacks from happening in the first place—when a customer knows they can get help from the merchant when they’re dissatisfied with a purchase, they’re less likely to take the complaint straight to their bank. Additionally, emails and other customer correspondence can serve as evidence in your favor when customers engage in friendly fraud.

Conclusion

Hopefully this provides some grounding in the basics of chargebacks for perplexed merchants, but we know we haven’t answered all of your chargeback questions. Every chargeback tells a story, and sometimes those stories are strange and convoluted.

When you’re dealing with chargebacks that don’t fit the mold and you can’t figure out how to fight or prevent them, don’t be afraid to reach out to the experts. When you have dedicated professionals

Even merchants who have been in the ecommerce business for years sometimes get confused by new or complex chargeback scenarios. If you’ve got questions about chargebacks, you’re in good company—and we’ve got answers for you.

Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions or requests for advice to: win@chargebackgurus.com

Fight & Recover Chargebacks - Get The Guide