Merchant’s Guide to Credit & Debit Card Chargebacks
In this modern era, accepting credit cards is a standard part of business. From the high street to small business, e-commerce to community markets, your customers expect to be able to pay for your products or services with plastic. For the most part, expanding your available payment methods with credit cards is a brilliant way to make your business more accessible to the largest number of people possible.
Unfortunately, sometimes you also have to process a chargeback.
What Is a Chargeback?
A chargeback is essentially a request from the consumer to get his or her money returned. The request goes from the customer to his or her bank then to your bank. It is very much like a refund — but without the transfer of goods or a service.
Why Do Chargebacks Happen?
Chargebacks happen for a number of reasons. One common instance is when a customer purchases a good or service and never receives it. Whether that happens because of neglect on the part of the company or because it has gone out of business, the only way the customer can get his or her money back is with a chargeback.
In some cases, a customer may ask request a chargeback if the goods or services he or she received turns out to be defective or faulty in some way. While a refund (in which the item is physically returned to your company) would be the most appropriate way to handle this circumstance, if the customer feels he or she is not able to do so or your company refuses and the customer has a compelling reason, he or she could take up the issue with the bank.
These reasons are the most serious, but there are other, more common reasons for why chargebacks happen. For instance, a customer may have accidentally been charged twice or charged the wrong amount. Alternatively, a customer may have been charged for a subscription or repeat payment after cancellation. These issues normally have a quick resolution.
Here’s a list of the official Visa and Mastercard chargeback codes for the most common chargeback issues.
|4808||Requested/required authorization not obtained|
|4812||Account number was not on file|
|4831||Transaction amount differs|
|4837||Fraudulent transaction; no cardholder authorization|
|4841||Cancelled recurring transaction|
|4853||Cardholder Dispute Defective/Not as Described|
|4855||Non-receipt of merchandise|
|4859||Services not rendered|
|4860||Credit not processed|
|4863||Cardholder does not recognize - Potential fraud|
|0000||No reason specified|
|30||Services Not Provided or Merchandise Not Received|
|41||Cancelled Recurring Transaction|
|53||Not As Described or Defective Merchandise|
|75||Transaction Not Recognized|
|77||Non-Matching Account Number|
|80||Incorrect Transaction Amount or Account
|81||Fraud - Card-Present Environment|
|83||Fraud - Card-Absent Environment|
|85||Credit Not Processed|
|93||Merchant Fraud Performance|
|00||No reason specified|
How Does the Process Work?
The chargeback process is simple. The customer contacts the credit or debit card issuer to dispute the charge. The issuing bank records the complaint along with any supporting information the customer can provide. For instance, if the customer received a charge after cancelling a subscription, he or she would provide information about when and how the subscription was cancelled.
The precise information required will vary depending on the circumstances surrounding the issue. The way chargeback claims are managed will depend on the card company. Visa has different rules than American Express, and MasterCard uses a completely different set of rules. These rules may also vary depending on the card product the customer holds.
In many events, the evidence can be as simple as a written letter provided by the customer or a document that the issuing bank completes after having a discussion with the customer about the charge and why he or she believes it should be refunded. At a minimum, it will include the name of your company, the amount the customer paid, how the payment was transacted (i.e., by phone, in person, online) and the date of the original transaction. The evidence will also include a description about the goods or services the customer bought, as well as a detailed description as to why he or she is asking for a refund. Invoices, receipts and correspondence between you and the customer will also be included.
If the issuing bank approves the customer’s chargeback request, the issuing bank contacts the retailer’s bank — your bank — and asks for the refund.
Understanding the Legal Side of Things
Unlike Section 75, there is no legal right to a chargeback. As a merchant or service provider, you can refuse, arguing that you provided goods or services in the best faith. Your bank could override that if it believes you did not follow through on your promise to the buyer, but there is no guarantee either way. In addition, the chargeback process has to start no later than 120 days from the date of the transaction, charge or expected delivery date of the goods or service. Your obligation to respond to a chargeback depends on the card type and the nature of the complaint – read more about chargeback time limits here.
As a merchant, there are certain measures that you can take to protect yourself. The most important is recordkeeping. You need to make sure that you have accurate records about the transactions that are processed for your company. Every time a sales associate closes a deal or sells something to someone, you need to have a record of it — especially if the item is paid for with a credit card.
Further, the transaction records you keep should be precise. At a glance, you should know exactly what was sold, who sold it, when the sale was made and how much it cost. You might also want to take down information about the particular item sold, such as the model number, production lot number and so on. That information will make it easier for you to verify whether the customer requesting the chargeback has a justified complaint or not.
You should also be sure to keep any correspondence between your company and its customers. This way you can check to make sure the information the customer requesting the chargeback provided to his or her bank is accurate. In some cases, you may have attempted to fix or resolve the issue, but it just wasn’t in the way that the customer ultimately wanted. Having records of your correspondence that illustrates the facts of the matter will help you prove your company’s good faith efforts.
Chargebacks happen, often without any fault of your own. Keeping good records will help you resolve them easily.