10-2 Merchant Account Chargebacks and Fraud

Chargebacks and Fraud

Dealing with and combating credit card chargebacks and fraud are two very involved topics that every business needs to take seriously. This section of the Merchant Account Information Guide will cover the more basic points about chargebacks are and common forms of credit card fraud, and how to deal with and prevent each one. There are other more in-depth sources of information available about this subject at the merchantcouncil.org that we strongly suggest you read. Guides and articles on this subject can be found at the Merchant Council home page.

Chargeback
A chargeback happens when a customer contacts their issuing bank to deny a charge made to their account. The issuing bank will reverse the charge by debiting the acquiring bank, who will in-turn debit the merchant's account, who originally placed the charge on the customer's credit card. A chargeback is most common with card not present business types such as mail order and online businesses.

When a chargeback occurs your processor or acquirer will notify you of the dispute by mailing you a chargeback notification . The chargeback notification will inform you of the transaction that is being disputed, and the reason the customer gave for the dispute. From this point you have a period of time to settle the dispute with the customer, or respond to the processor or acquiring bank with paperwork and proof that supports the charge. You will usually only be given a few days to respond to the processor or bank with any supporting documentation.

Preventing & Fighting Chargebacks

Recognizable Doing Business As (DBA) Name - The DBA name of your business is the name that a customer is going to see on their credit card statements. One of the most common reasons why customers issue chargebacks is because they do not recognize a charge on their credit card statement. Instead of doing research to figure out where the charge is from, most people will simply issue a chargeback.

The easiest solution to this problem is to make sure that your business name is easily recognizable to your customers so that they immediately recognize your charge on their credit card statement. Online businesses seem to have the most problem in this area. People often expect to see the name of the website that they ordered from on their credit card statements, and when they see the actual business name they fail to recognize who the charge is from and subsequently issue a chargeback.

For example, an online business that has a corporate name of DEF Incorporated may sells products through their website located at ABC.com. If their DBA name shows on their customer's credit card statements as DEF Incorporated, the customer will have no way of knowing that the company is connected to the website that they purchased product from and they will probably issue a chargeback. Online businesses should strongly consider using their website address as their DBA name to avoid chargebacks due to customers not recognizing the business name on their statement.

Statement Name Notification - Another way to combat unrecognized chargebacks is to notify your customers of how your name will appear on their credit card statements, so when their statement arrives they will remember your business name and allow your charge to stay. Something to the affect of, "Please note that this charge will appear on your credit card statement as YOUR BUSINESS NAME HERE" will help to reduce chargebacks due to unrecognized charges. It is best to prominently display a notification like this directly on a customer's credit card receipt in the case of retail businesses, on the checkout or receipt page for online businesses, and directly on the catalog order page for mail order businesses.

Document Sales - The better documented a sale is, the less likely a customer will be to issue a chargeback, and the less likely the customer will be to actually win a chargeback dispute should they issue one. Unfortunately, some consumers have become wise to the chargeback system and they issue chargebacks against perfectly legitimate transactions in the hopes that they will get a free product or service. If you take extra care to document your sales, these types of customers will often not bother to issue a chargeback against you because they know it will be overturned when you dispute it. If the customer does issue the chargeback, you will be able to supply the processor or acquirer with documentation supporting the sale and ultimately have the chargeback overturned.

Documenting sales is very easy once you become organized. For card present businesses, documenting a sale is as simple as saving the original credit card receipt that the customer signs. A signed receipt and a simple explanation are usually more than enough to win a chargeback dispute. For card not present business types, documenting sales can be a little trickier. All card not present businesses must take extra care to document their transactions. A customer usually has as long as 180 days to issue a chargeback and sales documentation should be saved for the same amount of time. Print out and file each order, and require signature deliveries for large volume orders that can be used later as proof of delivery.

Contact the Customer - If you receive a chargeback notification from your processor or acquirer, the first thing that you should do is contact the customer to try and resolved the chargeback directly with them. As we will explain in a moment, this is the cheapest and easiest way to resolve a chargeback dispute . In most cases, once you identify your business and explain why you had made a charge to their credit card, the customer will realize they have made a mistake and they will contact their issuing bank to withdraw the chargeback claim.

Chargeback Fee - If you fail to fight a chargeback that is issued against you in the time allotted, or you lose the chargeback dispute, you will be charged a chargeback fee by the processor in addition to having the original amount of the disputed transaction deducted from your bank account.

Retrieval Fee - You will be charged a retrieval fee if you respond to a processor's request for information to defend yourself against a chargeback. A retrieval fee is like a processor's handling fee to deal with any information that you send back to validate your original charge. If you are able to resolve a chargeback dispute directly with a customer, your account will not be assessed a chargeback fee and you will not need to send information back to the processor therefore avoiding the retrieval fee.

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