What are chargebacks and what do they mean for your business.
It is very important to know that what actually chargeback is, for it doesn’t matter whether you are a merchant who has received his first chargeback or a consumer who is curious to know how chargebacks work.
A chargeback is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals. Chargebacks are not good for businesses because whenever a business owner sells a service or product online and in some cases due to some reason the consumer returns the product or service then the process of chargeback begins. Chargeback rates decide the category of your business, if the number of chargebacks is high then it will incur huge losses and the reputation of your company will be tarnished among credit card processor and payment processor.
The higher rate of chargeback means your business will consider as a high-risk business and if chargeback rates of your company are more than 1% then payment processor will not be ready to give you high risk merchant account for credit and debit card processing.
Reasons for chargebacks: There are so many reasons for chargebacks like defective goods, fraudulent transactions and many more. If you fully understand the reason of chargebacks then you will also be able to reduce chargeback. Reasons for chargebacks are as follows:
- Goods and Services
Usually, customers will demand the refund when they do not receive their product or items that they buy from your online store. To reduce these type of chargeback it is important to keep track on the good that you deliver and always keep the shipping receipts with you for any future disputes.
- Credit Card Issue
These are the case of fraud calls and the transaction over the phone or mail which the customers not aware of. To avoid these type of chargeback always make sure to take all the information from your customer, which are necessary?
- CVV of Credit Card
Invalid account number and credit cards. Use technology to keep your system update and aware of an invalid credit card or able to reject any invalid or expired credit cards. When the purchase made by any expired credit card then the chargeback occurs.
Credit Card Chargeback Time Limit & Rules
The time limit to file a chargeback is between 60 to 120 days from the time of the original purchase. Then the merchant has 45 days after receiving a chargeback to dispute the chargeback. There are different rules for different credit card companies and all the rules are set by them only. The entire lifecycle is going like as follows:
- At first, the customer submits the complaint with their issuing bank
- After receiving a complaint, the issuing bank verifies it whether it is genuine or not and if the customer founds guilty then the process ends here only.
- But if the customer is not guilty then the customer immediately gets the refunded money and the card holder’s bank initiates the chargeback process and then contact the merchant’s bank.
- When the merchant’s bank get contacted then they also verify the request by their own investigations.
After that, there are two possibilities. One possibility is whether the merchant banks found the request invalid and then they inform the customer’s bank about it, which happens in rare cases only.
Another possibility is that the merchant’s bank found the request valid then the merchant will be asked to proof themselves right if the merchant will be able to provide the valid and full documents then the chargeback will be removed from the records and the cardholder’s bank remove the refunded money from the customer’s account. Otherwise, if the merchant will not be able to prove himself or herself right then the funds are removed from merchant’s bank and a chargeback will also remain in the records additionally the merchant also pay some additional fees.
How to prevent credit card chargeback
There are the rules made by the payment processing network so the best way to prevent chargebacks is to adhere the policies and guidelines made by them which are actually to protect you only.
- Always obtain proper information from your customers for verification. Make sure the name showing in the billing address is same as the address shown in the delivering address and the receipt is signed by the customers to solve any further disputes if occurs in future.
- Use the proper system to verify the validity and expiry of the card.
- Follow the current security standards
- As initiated by so many online companies to capture the signature digitally is a very good initiative taken by them and verify that digital signature by comparing it with the signature on the back of the customer’s card.
To Know More about chargebacks on credit cards
Give us a call at+44 800 776 5988 or get in touch with us through our website. Even if you’re not a customer of ours, we want to help you understand the process so you can make the best decisions for your business. We believe transparency and proactive education is the best policy.