A Brief Guide To Chargebacks

Despite our choice of photo…….chargebacks are not to be confused with refunds or cashback!

How do they arise?

Chargebacks arise when a cardholder disputes a transaction which has already been processed and settled.   The dispute can be for a number of reasons, the most common being :

  • Card was stolen or used fraudulently without the cardholder’s knowledge
  • Processing error – wrong amount or card number keyed
  • Issue with the goods or service, eg  non or late delivery, don’t match description, or they are faulty
  • Transaction not correctly authorised
  • Merchant does not have correct transaction capture type set-up, ie not set up for MOTO or e-Comm transactions

Cardholders can raise chargebacks up to 120 days after the transaction date.  Under the card scheme rules, cardholders have the right to be re-imbursed for a chargeback.

Can I dispute a chargeback ?

You can dispute a chargeback by providing evidence to the acquirer that the transaction is authentic – the card schemes give definitive guidance as to the level of evidence required.

What happens?

Normally a cardholder will contact their issuer to dispute a transaction who in turn will contact your acquirer (via the card scheme).  Sometimes the cardholder will contact you first to seek a refund and will only progress to a chargeback if a refund is not forthcoming.  Chargebacks are not to be confused with refunds which arise when a cardholder contacts the merchant directly and the merchant agrees to process a refund.

You will then receive written notification from your acquirer detailing the reason for the chargeback.  This may include a request for information (“RFI”) from the issuer to help determine the authenticity of the chargeback.  For some chargebacks you may not receive an RFI, if for example there is a process error, say you have taken a payment above your floor limit without obtaining a valid authorisation code when required to.

The acquirer will notify you of when the chargeback will be debited from your merchant account (offset against settlement funds) unless you successfully dispute the transaction.

Why am I charged a fee for handling Chargebacks ?

Chargebacks are a hassle for acquirers.  There will normally be a paper audit trail for the acquirer to review and this will be a manual process.  Handling chargebacks takes time and is expensive for the acquirer hence why there is a high cost to the merchant (c.£15 – £20 per chargeback).

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