Understanding & Minimizing Chargebacks

Friday, December 27, 2019

Consumers have a TON of control in the marketplace.  They can lift businesses up with their purchases and they can bring businesses down by withholding their spending.  When a consumer elects to dispute a charge, it is called a CHARGEBACK and that action can have serious financial repercussions for businesses!
Sometimes, a cardholder does not recognize a charge on their monthly credit card statement.  In this instance, they can call their card company and request a copy of the receipt.  In MOST cases, these RETRIEVAL REQUESTS are enough to satisfy a cardholder and they remember their charge.  Be sure to respond to these requests rapidly as failure to respond in the limited time frame provided, can cause the unnecessary loss of funds for your business.

Below, you will find a list of the most common chargeback types as well as the ways that businesses can minimize their exposure to this costly and time consuming part of accepting credit cards.

Merchants need to pay special attention to the reason codes on the chargebacks they receive.  Having a good understanding of why consumers are disputing charges can help business owners strengthen the various parts of their businesses.  Reason codes do vary by bank network but most of the reason codes fall into the following 4 categories:

  1. Technical: expired authorization or bank processing error
  2. Clerical:  duplicate billing, incorrect amount billed or refund never issued
  3. Quality:  consumer claims product or service was not as described or they never received what they paid for
  4. Fraud:  consumer claims they did not authorize the purchase or identity theft

  • Business owners can minimize losses related to TECHNICAL CHARGEBACKS by making sure transactions are batched or settled daily and by reviewing settlement reports to identify any potential errors.
  • Business owners can minimize losses related to CLERICAL CHARGEBACKS by reviewing batches to make sure transactions are not duplicated (most processors have the network set up to automatically kick out duplicates), by being careful when entering the correct charge amount and by making sure that refunds are processed in a timely manner.
  • Business owners can minimize losses related to QUALITY CHARGEBACKS by setting clear expectations for their customers, under promising & over delivering and addressing concerns in a prompt and fair manner for their clients.
  • One of the most damaging types of chargeback activity is related to FRAUD.  Business owners can minimize losses related to FRAUD CHARGEBACKS by verifying identity at the point of sale, by using fraud prevention tools for online sales and by paying close attention to the erratic purchasing behaviors of their customers.  In most cases, merchants are held responsible for the use of cards that have been lost or stolen.  The much talked about EMV card type will help merchants affected by fraudulent (card present) card activity by adding another layer of security.
It is important for business owners to remember that the card regulations are heavily weighted in favor of the card holder.  Keeping great records, being diligent during the sales process, delivering on your promises and responding quickly to customer concerns and chargeback notifications will help you minimize the costs associated with disputed transactions.

Cheri Perry 12/27/2019

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