The Lifecycle of a Typical Chargeback
Despite all of the advantages and benefits to business owners that come from using a credit card processing company to accept cards as payment from customers, accepting them is not without potential risk. Customers buy more and more frequently when they can use a card to make their payment, so accepting cards will increase your sales – but keep in mind more credit sales can result in chargebacks.
What Are Credit Card Chargebacks?
A credit card chargeback is when a customer refuse to pay for items purchased using their card. They may initiate a chargeback if they don’t receive products they order, or because someone else made the purchase using their credit card, or because they received damaged items or items that were not as they were described. The bottom line is that a chargeback is a process designed to protect card holders, but in the process can cost businesses that accept credit cards as payment.
Lifecycle of Credit Card Chargebacks
1) Cardholder receives their credit card statement, and notifies the card issuer that they dispute the transaction.
2) The card issuer reviews the transaction for it’s chargeback eligibility. If it is appropriate, the card issuer credits the cardholder’s account and charges the merchant bank.
3) The merchant bank receives the chargeback, and reviews the transaction. It will either resolve the issue, or charge the merchant who processed the credit card in the first place.
4) The merchant receives the chargeback and can re-present the transaction to the merchant bank under certain conditions, or if conditions aren’t met for reprocessing the credit card transaction, the merchant must accept and pay for the chargeback.
5) If the chargeback is resubmitted for payment to the merchant bank, the merchant bank will resubmit to the cardholder who will either pay for the item or resubmit it as an unresolved dispute. The cardholder will be debited the amount of the transaction if it has been resolved, or credited the amount if it is still disputed.
The Problem With Credit Card Chargebacks
Most merchants do not have a problem exchanging goods they sell that are damaged. Many merchants will also not complain if a customer buys an item but later returns it for a refund, for whatever reason. The problem with chargebacks is when they are abused by customers, and the end result is the potential for high costs and fees to the retailers accepting credit cards as payment.
Consider a customer who orders a product online. If he or she initiates a chargeback request to the credit card processing company to say the item was not as described, or that they didn’t receive the item at all – it’s possible you will be forced to refund the customer. If you really did send out the item ordered, this means the customer gets the item for free.
If a customer initiated chargeback request ends up in the retailers favor, meaning they don’t get a refund as they requested you are still often charged a chargeback fee between $10 and $25 for each chargeback requested. If you start getting a large number of chargeback requests from customers, your merchant account or credit card processing company may increase the fees you pay and consider your company a higher risk retailer.
Reduce Chargeback Requests
1) Make sure your website or mail order catalog clearly defines how the credit card charge will appear on the credit card user’s statement. Sometimes a customer doesn’t recognize the business name as it appears on their statement, and will initiate a chargeback request immediately assuming the purchase was fraudulent.
2) Also, ensure that your phone number appears on the credit card statement so customers can call you with questions before initiating a chargeback request to their credit card company. This will eliminate a large number of chargeback requests for customers who forgot they made a purchase!
3) Take customer satisfaction seriously- This is good business sense regardless of how your customers prefer to pay for products or services. It is much easier to retain current customers than lose and replace customers on a regular basis. Customer satisfaction includes properly handling complaints. If a customer comes to you with a complaint, address the issue and do everything possible to resolve the issue at this level before it escalates to the point of the customer contacting the credit card company.
4) Pay attention during the transaction- Whether you accept online orders or deal with your customers face-to-face, pay attention to details. Does the credit card signature match that of the receipt? Is the person signing an authorized user? Does the address of the customer match the billing address of the credit card? These are just a few of the ways you can reduce credit card fraud and ensure the right person is using the account.
5) Instead of charging for pre-orders at the time of order, wait to charge the credit card when you actually ship the items.
Reducing chargebacks will not only save you money in credit card processing fees but also ensure you are allowed to continue to accept credit card payments. If a merchant experiences too many chargebacks to their account, it is possible they will be “blacklisted” and no longer allowed to accept certain credit cards at their place of business.