Chargebacks: The Uninvited Guest in Your Business Party

Running a business is like throwing a party. You’ve got your guest list (customers), your venue (storefront or website), and your party favours (products or services). But just when you think everything is going smoothly, an uninvited guest shows up: chargebacks.

A chargeback is like that friend-of-a-friend who eats all the snacks and spills red wine on your carpet. It occurs when a cardholder contacts their bank to dispute a charge on their statement. The bank investigates the claim and, if found to be valid, reverses the transaction. While designed to protect consumers, chargebacks can leave merchants with a big mess to clean up.

Consumers typically have a time limit to file a chargeback request, which can vary depending on the card issuer and the reason for the chargeback. Generally, a consumer has up to 120 days to file a chargeback request, although some issuers may offer longer time limits for certain types of disputes. However, there can be exceptional cases where the time limit may be extended up to 540 days, such as in cases of fraud or if the merchant failed to provide proper documentation for the transaction.

A chargeback can be raised for several reasons, including unauthorized transactions, fraud, billing errors, product or service issues, and processing errors. One type of chargeback that can be particularly damaging to merchants is friendly fraud. This occurs when a cardholder disputes a charge that they did in fact authorize. It’s like when your cousin swears they didn’t break your vase even though you saw them do it.

But don’t worry, there are bouncers at this party. Card networks have taken several actions to counter fraudulent disputes from consumers and avoid fraudulent transactions via online channels. One action is the implementation of 3D Secure. This is an additional security layer for online credit and debit card transactions that adds an authentication step for online payments. By requiring the cardholder to authenticate the transaction via OTP (One-Time Password), it reduces the likelihood of fraudulent transactions being approved.

Another action taken by card networks is Visa’s initiative to update requirements for compelling evidence under reason code 10.4, which indicates that the cardholder is claiming that they did not authorize or participate in a card-not-present transaction. The goal is to reduce ‘friendly’ fraud chargebacks and help sellers protect more of their hard-earned revenue. New rule changes take effect on April 15, 2023.

To counter chargeback disputes when raised by consumers, merchants should keep detailed records of their transactions and customer interactions. This can include tracking information for shipped items, proof of delivery or service completion, and records of any communication with the customer. Having this information readily available can help merchants provide compelling evidence to dispute a chargeback.

To avoid chargebacks being raised after a long duration or service fulfilment, merchants should frame their contractual obligations effectively. It is important to clearly communicate policies and terms and conditions to customers to minimize confusion or misunderstandings that may lead to chargeback requests.

Partnering with a reliable payment processor like RinggitPay can also help merchants simplify payment processing, provide alternate payment methods, eliminate payment delays, and improve cash flow stability, ultimately benefiting both the business and its customers.

Reference:

https://www.elliott.org/ultimate-consumer-guides-smart-travelers/the-complete-guide-to-chargebacks-and-winning-a-credit-card-dispute/