Chargebacks

A chargeback is a transaction which is formally disputed by the cardholder or the cardholder’s issuing bank. Chargebacks can be a costly part of accepting card payments. Excessive chargeback rates may result in loss of revenue, damage to your company’s reputation, penalties imposed by card schemes (Visa, Mastercard etc.) and even termination of your account. It is essential that you minimise chargeback risk at the time of sale by complying with card schemes’ guidelines and requirements. When we defend your cases, we send a so-called “re-presentment” to the issuing bank to support the validity of the disputed transaction.

This is a request for transaction information from the cardholder’s bank, such as a copy of a receipt, an invoice, or proof of cardholder signature. A retrieval can be requested for up to 18 months from the sale date and so it is crucial that you keep your receipts for this time frame. When a copy of a transaction receipt is requested, you will receive a copy request notice. If the retrieval request is not acted upon quickly, or you provide an illegible sales draft, it may evolve into a chargeback - at which time your account may be debited for the amount of the disputed transaction.

How to reduce chargebacks:

• Keep a record of your sales receipt
• Ensure sales vouchers are legible
• Make sure transactions are easy to identify
• Respond within specified timeframes and provide all transaction related information you possess

Yes, a chargeback consists of several stages. The first stage is a first chargeback, which can be defended in a so-called “re-presentment”. The issuer and cardholder have the right to escalate the chargeback to subsequent stages: either the ‘Second Chargeback’ stage or the pre-arbitration stage (depending on the Card Scheme).

If there is still a disagreement at this point, the chargeback case goes to the final stage: Arbitration.

Arbitration is the final stage of the dispute process. At this stage, the relevant Card Association (i.e. Visa or Mastercard) serves as the decision-making body. You will be responsible for all fees, penalties, and the transaction value if your case is not successfully defended. Arbitration committees impose fees on the losing side which may reach 500 EUR or more.

Compliance is an alternative procedure for a dispute when no chargeback code is applicable. It places the same financial liability on the merchant as a chargeback therefore, if you receive a compliance notification letter, you must provide documentation to support the dispute.

Duplicate Processing is a type of chargeback in which a cardholder claims that a transaction was processed twice. The onus is on you to provide proof to the contrary in a Duplicate Processing chargeback: if you cannot provide proof, you will be debited for the cost of the duplicate transaction.

To defend Duplicate Processing chargebacks, we need documentation for both the disputed transaction and the transaction accepted by the cardholder. The documentation should include signed sales receipts, invoices, booking confirmations, and contracts.

Duplicate Processing is a type of chargeback in which a cardholder claims that a transaction was processed twice. The onus is on you to provide proof to the contrary in a Duplicate Processing chargeback: if you cannot provide proof, you will be debited for the cost of the duplicate transaction.

To defend Duplicate Processing chargebacks, we need documentation for both the disputed transaction and the transaction accepted by the cardholder. The documentation should include signed sales receipts, invoices, booking confirmations, and contracts.

A Not Matching Account Number chargeback happens when the transaction card details are not on the issuer file. This type of chargeback can be caused by a card number being taken incorrectly during a manual transaction, or if an account is closed.

This type of chargeback applies when the goods or service ordered by a customer are not the same as the description on the sales receipt or related documentation.

In order to defend Not as Described chargebacks, merchants should provide written proof that the service or merchandise was correctly described, proof that the merchandise received was not damaged, and a written explanation regarding the dispute with the cardholder. It is crucial that the courier services you use to deliver merchandise to cardholders obtain a signature at the moment of the delivery.

Service not Rendered is a chargeback in which the cardholder claims they have not received the service stated or that they paid for the service by alternative means.

In order to defend this type of chargeback, the following documentation is required: signed proof of delivery, signed proof of receiving service invoice, and a written explanation.

If a card is not presented to you at time of sale, the transaction cannot be secured and you will be held fully liable if the cardholder subsequently raises a dispute. In the event of a fraudulent transaction that involves 3D Secure verification, however, responsibility lies with the issuer (unless your website did not perform full 3D Secure verification, or allowed the customer to skip the check).

Remember, transactions that are processed through 3D Secure can still be disputed under chargeback for reasons other than fraud.

Insurance cannot be taken out on card-not-present transactions but you can reduce the risk by utilising security features such as 3D Secure and security code verification. To increase safety for card-not-present transactions, Visa and Mastercard developed security standards that are verified by Visa and Mastercard Secure Code. Both methods are based on 3D Secure technology and verify online credit card payments made by the legitimate cardholder using a password interrogation process. While this process guarantees security against fraud, chargebacks can still be raised under different reasons (duplicate charge, service/goods).

A Declined Transaction chargeback indicates that the issuer does not approve the transaction. In the event of a Declined Transaction, do not continue with the transaction and instead request an alternative method of payment.

A Fraudulent Transaction chargeback denotes:

• A transaction that the Cardholder did not authorise or participate in, and/or
• An attempt to use an Account Number for which no valid Card has been issued, or to use a Card that is outstanding and that has not received Authorization.

In order to defend a Fraudulent Transaction chargeback, the Merchant must supply proof that the cardholder participated in the fraudulent transaction.

A fraudulent transaction is a transaction that the genuine cardholder does not recognise and claims that they did not participate in or benefit from. Transactions which carry a high risk of fraud are:

• MOTO
• Card number manual entry
• e-Commerce (without 3D Secure verification)
• Swipe card transactions (cloned card risk)
  
  

Fraudulent transactions pose a high chargeback risk because merchants must be able to supply proof that the cardholder participated in the transaction.

According to card scheme rules, the transaction processing methods that are fraud preventive are:

• Chip & PIN,
• Contactless
• Magnetic stripe read (if the genuine card does not bear a chip)
  3D Secure verification (for card absent transactions).
  
  

Transactions that are processed through Key entry, Mail/Telephone order, and unsecured online transactions are also a threat and you will be held liable in case of chargeback

Paid by Other Means chargebacks occur when the cardholder claims that a transaction was paid by an alternate method (cash, other credit/ debit card, voucher) and yet their credit/debit card was charged for that same purchase.

In order to defend this type of chargeback, the following documentation is required: proof that both transactions are valid (payment by alternate method and credit/debit card payment), invoices, and a written explanation.

A Credit not Processed chargeback occurs when a cardholder has not received the defined refund following the return of goods or cancellation of service as agreed.

In order to defend this type of chargeback, the following documentation is required:

• Proof that refund was processed
• Proof that cardholder was informed about cancellation policy prior to finalizing the transaction
• Transaction receipt
• Other records to prove proper disclosure of a limited return or cancellation policy at the time of the transaction

According to card scheme rules, the cardholder has to accept the stated terms and conditions prior to accepting a transaction. Accordingly, merchants must properly disclose the terms and conditions and obtain confirmation that the cardholder has accepted them.

• For internet transactions, you should have a click to accept button on the payment page: by clicking the button, cardholders indicate that they have accepted the terms and conditions of the transaction. If they do not indicate acceptance, the transaction does not continue.
• For transactions taken on site in the presence of the cardholder, you should obtain the cardholder signature under the terms and conditions. The terms and conditions should bear a statement that the cardholder acknowledged them prior to processing the transaction.
  
  

The terms and conditions of a transaction cannot be presented to the cardholder after confirming their purchase. You must ensure the cardholder cannot proceed with their purchase until the terms and conditions are accepted: failure to do so may result in financial loss in case of chargeback.