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The First Three Things to Do When Faced with a Chargeback

June 2, 2017 by Kenzie Earle

Credit card charge disputes, or "chargebacks," are unfortunately a part of doing business. Reasons for chargebacks are numerous, from stolen credit cards to dissatisfaction with goods or services, and everything in between. Understanding chargebacks, and how your company should respond when faced with one can help make the process easier.

When a chargeback occurs, the customer's bank contacts the card network, sending the chargeback to the merchant's bank, and the amount is debited from the merchant and credited back to the cardholder. There are opportunities during this process for the merchant to respond. So being prepared to handle chargebacks when they occur is the best way to prevent losses for your company.It’s important to choose a payment processor that is proactive and supportive during the chargeback process. At PayStand, our customer support team works directly with our merchants during the entire dispute as well as provide all evidence on our end to help. Here's a look at the first three things you should do when a customer disputes a credit card charge:

1. Understand the Chargeback

When a card network sends chargebacks to acquiring banks, they include a chargeback code to explain the reason for the chargeback. Across the four major card networks, there are currently 151 chargeback reason codes. The first thing you need to do when faced with a chargeback is check the chargeback code, and understand the reason behind the chargeback.

Chargebacks generally fall into one of three main categories:

  • Friendly Fraud - While it's not so friendly, "friendly fraud" refers to a seemingly satisfied customer requesting a chargeback from their bank. This can occur when a customer does not recognize or remember a charge that appears on their statement, a purchase is made by a family member rather than the primary cardholder (a wife orders something with her husband's' card, etc.), or a customer turns to their bank for a chargeback due to dissatisfaction with a product or service, rather than reporting back to the merchant themselves. Chargebacks categorized as "friendly fraud" are fraudulent chargebacks that are requested without malicious intent or ill will. Friendly fraud accounts for an average of 70% of chargebacks, making the most commonly occurring. This is also the case in the business world where there are often multiple people in departments sharing the same company credit card.
  • Criminal Fraud - Chargebacks categorized as criminal fraud refer to charges not authorized by the primary cardholder, such as in cases of card or identity theft. A criminal makes a purchase with a stolen card or credit card information, and the legitimate cardholder files a claim for a chargeback. Criminal fraud amounts to less than 10% of chargebacks.
  • Merchant Error - Chargebacks that fall into the category of merchant error occur due to some problem arising from the merchant's end of a transaction. These problems include faulty or incorrect products, accidental double-charging of a customer's card, poor customer service or customer dissatisfaction with a product or service. Merchant error makes up roughly 30% of all chargebacks.

Understanding the reason behind a chargeback is the first thing that you must do when you encounter a credit card dispute. Knowing why a customer has filed for the chargeback will allow you to proceed accordingly.

2. Determine Your Response

After receiving notification of a chargeback and understanding the reason behind its filing, you must prepare your response. In some cases, such as merchant error, you may choose not to respond. If this is so, you will lose the amount originally charged and whatever goods or services were rendered.

If you'd like to fight the chargeback and potentially win back the amount of the disputed transaction, you must prepare and submit a response to the chargeback. To respond effectively, include any relevant documents with your response. Documents may include invoices or order forms, signed delivery forms or pick-up receipts with proof of identification, or any other documentation proving that the charge was legitimate. On PayStand’s side, we would gather all evidence we collect during the transaction to submit as well. In most cases, PayStand wins disputes on chargebacks with the help of our security features, such as enterprise blockchain certification, and continuous cooperation with our merchants throughout the process.

It is crucial to respond promptly to chargebacks. If you don't submit a response within a certain time frame after being notified of a chargeback, the issuing bank will simply process the chargeback and you will lose both the opportunity to dispute the chargeback and any profits from the initial transaction.

3. Dispute the Chargeback

After your response has been sent in regards to the chargeback, be prepared to dispute the chargeback. Note that most banks will initially side with customers in the case of a chargeback, so having solid, concrete evidence to prove that the charge was authorized and legitimate will help to win the chargeback case. Like legal cases, you and the customer will both have the opportunity to submit evidence in regards to the chargeback, so be ready to provide further documentation or evidence if either bank requests it.

By using PayStand as your payments processor, you can fight chargebacks with confidence. With enterprise security features, including blockchain certification, and a strong customer support team, we’re your best advocate. In addition, PayStand supports other payments rails besides credit cards including debit cards, eCheck, and ACH so you can offer your customers multiple ways to pay. With tools such as a Billing Payment Portal, e-mail notifications, and more , you can manage and stay on top of your company's transaction history and solve chargebacks faster.

If you’re interested in learning more about using PayStand for your company’s payment processing, don’t hesitate to contact us today.

Tags:   ACH, eCheck, merchant fees, credit cards, Billing Portal