As a business owner who accepts credit cards I am fairly sure you are at least familiar with the chargeback, but let’s briefly explain it anyway. When a customer files for a reversal of a payment made to a merchant with their credit card issuing bank it is called a chargeback. The bank forces a reversal of the payment transaction to the merchant thereby deducting the money from their account and returning it to the customer’s account without the approval of the merchant.

 The goal of the chargeback process was to protect the customer from truly fraudulent activities.

But humans are not perfect and do sometimes find a way to exploit a loophole in the system. Enter friendly fraud. When we are talking about a merchant being able to rebut and fight a chargeback we are of course only referring to friendly fraud and non-fraud types of situations. Because, of course, if it were real fraud the merchant wouldn’t have a viable reason to fight the process.

Non-fraud chargeback situations are the types where there is a chargeback filed by a customer who made a legitimate purchase but files a charge back because there was some sort of problem. These problems might include things such as the goods being damaged or the customer never received the goods, etc. These are they times when you want to pay attention to your notifications and use the opportunity to reach an agreement directly with the customer. It is always better to give a refund than to have a chargeback on your file. Friendly fraud is much like non-fraud situations except that many times there is really no legitimate issue with the purchase, it is just that the customers didn’t like the product, or changed their mind about how bad they wanted it or they’re just simply trying to get something for free. Yes they actually do that. So, instead of calling customer service they try to remain anonymous and file a chargeback with their credit card company instead.  

Unfortunately, chargebacks are just a part of the deal if you are a business owner. You may feel that they are just a line on your profit and loss statement that you can’t do much about it, other than plan for it and make sure it is in your budget. But that is no reason not to educate yourself in the process and do what you can to mitigate the frequency.

The best way to fight chargebacks is to not let them happen in the first place. There are numerous steps you can take to help minimize the incidence of credit card fraud, whether it is true fraud or “friendly” fraud. But that’s not what we will focus on here because if you have been in business for a while, no matter how hard you try, you most likely will have a chargeback at one time or another. Here we will focus on how to win a chargeback and recover your money.

Why do you want to fight your chargebacks?

Because they cost you hard earned money and possibly even your merchant account. Not only are you out the merchandise that you shipped, but you also lose your profits and all of the shipping costs, you still owe any processing fees that were charged when the transaction went through and on top of that you will also pay any and all fees assessed by the bank for the chargeback process itself.

When you consider the fact that almost 80% of all chargeback disputes are suspected to be attributable to friendly fraud type situations you can easily see how much of your profits are walking out the door when no one is looking. This can be a very expensive habit for your business.

Banks expect you to fight at least some of the chargebacks that are filed against your business. For one, if you do not ever fight them it may seem to the bank as if you know you’re at fault. This does not lend kindly to your reputation with your bank. And if you don’t think they are worried about your reputation, think again.

Acquiring banks have pretty strict rules where chargebacks are concerned and most require that your chargeback ratio stays under 1% of your sales. If for any reason your ratio goes over that 1% mark they could terminate your account and could land you on the MATCH list making it almost impossible for you to qualify for a merchant account.

At the same time it can be costly and time consuming to try to fight all of the chargebacks you might have, especially if you are operating a higher risk type of business.

Overall, it is always best to weigh in on how strong your argument is. IF you’re not fairly certain you will win than it may be in your best interest to either just offer the customer a refund in an attempt to avoid the chargeback or just let it process through and walk away.

How to effectively fight a chargeback.

Fighting a chargeback is all about deadlines and documentation.

Because there are no standard regulations across the industry, each of the various entities involved will have their own set of requirements. This means that the card issuer can have very different time constraints than both the acquiring bank and your processor. To put a little more salt in the wound, these rules change regularly. Visa just implemented a whole new set of rules aimed at simplifying the whole process, which become effective in April. It can be very difficult but you should at least try to familiarize yourself with the ones set by the partners you work with.

It will also pay to give attention to your notices right away and take note of any and all deadlines stated within.

While card holders can have anywhere from 60 – 120 days to decide to initiate a chargeback, you, the merchant, are not given that kind of luxury to follow up. Generally, most card issuing companies will only give the merchant a few days, commonly 5-10, to respond to the chargeback. This is not very generous given that you must provide all documentation pertaining to the purchase along with any supporting documentation as well as a rebuttal letter. This is known as Representment- you are presenting the charge again ( RE-presenting) back to the bank with supporting documentation to basically prove it is due.

Ideally, all documentation will strictly follow the guidelines requested when submitted. They will inform you of the exact arrangement and file types they expect as well as how they want it delivered. Any wavering from this format can end up with you being denied without even being considered. You do not want to lose a fight to a clerical error.

Remember in this situation, the customer is always right. Once a chargeback process has been initiated the issuing bank will immediately deduct the amount of the sale, along with any chargeback fees, from the merchant’s account. So from here on out you are working to get your hard-earned money back. When writing your rebuttal letter take care to make sure that you are clear and concise and make every effort to represent yourself to the bank as a professional who is trying to protect their reputation with their bank.

Maintain accurate records.

It will behoove you to maintain organized and accurate records from the very beginning. That way when you do become involved in a chargeback dispute you will be able to quickly find the supporting documents you will need to send in with your dispute.

Obviously the type of documentation you will have available to you will vary depending on the type of business you offer, but you will want to keep on file anything that can help you tell the story of a true and viable purchase by the consumer. These things may include but are not limited to; purchase summary receipt, signed payment receipt, any delivery notification you may receive, as well as any communications you may have had with the customer prior to purchase.

In addition, there is other behind-the-scenes information about each transaction that you can have collected and stored for you that will help to support your story; customer’s IP address where the purchase was made from, dates and times, proof of prior successful purchase and delivery by that same customer.

Understand reason codes.

Every chargeback must have a reason for the filing. When you receive your initial chargeback notification it will contain a code that used to classify the reason for the chargeback. These codes are the clue to the “why” your customer is filing for the transaction reversal. These reasons vary from fraud to damaged items to non-delivery of the item or service and everything in between. To make it more confusing the codes vary from one card network to another.

Contact the customer directly and possibly save the sale.

Armed with the reason code you will already have an idea of what is wrong. But it is always better to hear it from the customer. This will give you the opportunity to “make it right” and possibly save the sale or at least keep a customer for the future. Many merchants don’t realize that a customer can actually cancel a chargeback with their card issuer. It is always better to fix the problem or issue a refund yourself than record a chargeback. However, be careful that you don’t issue a refund and then still have the chargeback processed!

Fighting chargebacks is not easy. It can eat up nearly 20% of your operating budget and be incredibly time consuming. While it can be difficult to determine when a chargeback should be disputed and when you should let it go, they are still worth examining and fighting.

Give yourself a helping hand.

While it is important to pay attention to your chargeback incidences and make an effort to keep more of your profits, it is possibly more important to focus your energy on running your business. Luckily, you don’t have to do it all yourself. You can start fighting chargebacks due to true fraud by leveraging the use of fraud protection tools. These types of software and security tools are designed to detect suspicious activities and thwart fraud attempts before they happen. Beyond that, it is important to implement and adhere to Best Practices and leverage chargeback management software. Bankcard Brokers offers a robust, award-winning chargeback management solution to help ease the burden for the merchant. They work directly with a large network of the top card issuers and continue to add to the network regularly. These tools allow you, as a business owner, to effectively reduce both the time and money involved with fighting your chargebacks. This will leave you to focus more time and energy on your business while the experts handle the chargebacks.

Give Bankcard Brokers a call today to see how we can help you make your business more efficient and prosperous.