When you sign up for a merchant account, you open the doors of your business to more modes of payment. This can be a good thing, because it usually gives your client more options to pay for your product or services. This will most likely translate to more revenue for your business. Accepting credit and debit cards is one of the forms of payment available when you get a merchant account. There are other options like near field communication technology, but this article will focus on credit card processing and the aspect of chargebacks. As a business owner, you should be familiar with this because a chargeback might cost you a pretty penny and might even get your merchant account suspended. It is best to be knowledgeable about this, so when someday you are faced with a dispute you would know what to do. Here are the essential things you have to know about chargeback.
What Is It?
According to Investopedia.com, a chargeback is the money paid back to the customer by the merchant after a successful dispute raised by a customer. Issuing banks, banks that provide the credit or debit cards, are responsible for the chargebacks. This is a way to protect their customers from fraudulent and questionable transactions found in their credit card statements. A chargeback can be done after a client complains about said fraudulent transactions. When found that the transaction was indeed fraudulent, the bank will return the money to the cardholder. The bank will then get that value back from you through your account and the merchant bank you use. If you can’t prove that your transaction was legitimate, it can be really costly for you. The fee of chargeback can be from $0 up to $100 depending on your merchant account. Unfortunately, even if the complaint was proven to be untrue it can still cost you because of the processing fees that the bank will charge you. You wouldn’t have to refund anything but you will still have to pay all processing fees that were used during the investigation. This may vary though from bank to bank. Truthfully, chargebacks are expensive, whether they are proven true or not. In addition to the great losses, it would also probably give your business a bad name with the credit card processing companies that you use. So it is best that you don’t get involved with any chargebacks as much as possible.
Why Is There a Chargeback?
There are many reasons for a chargeback and as a business owner and one who use credit card processing services, you should be aware of them. Mostly, cardholders raise a complaint with their issuing banks because they have found inconsistencies with their credit card statements. Here are the most common reasons for chargeback complaints:
- Fraudulent transactions. The most common cause of chargeback complaints is fraudulent transaction. This happens when the cardholder has no idea that his or her credit card is being used to buy products or avail of services. The card might have gotten stolen or someone is using the cardholder’s identity. This is another unfortunate event for a merchant since the responsibility will solely rely on their shoulders. If the complaint is proven valid, the merchant will have to refund every last cent that was used and the chargeback fees.
- Unprocessed credit. This happens when the customer returns a product bought but the merchant failed to return the money. This may happen if the merchant posted a different or a faulty product. After the product is returned it is the responsibility of the merchant to post the money back to the customer’s account. Failure to do so might result in the customer raising a complaint to the issuing bank thus a possible chargeback for the merchant.
- Unreceived items. Unlike the previous situation, what happens here is that the product was not received at all. This is common for common online scammers who will request the money but does not really have a product to deliver. But for legitimate businesses, failure to deliver will probably result in a chargeback.
- Technical problems. Many chargeback complaints stem from technical problems between the issuing banks and the merchant. This sometimes happens when a card is charged twice for one product or when a charge went through but the transaction between the merchant and the customer fell through.
How Is It Done?
Chargebacks are sometimes inevitable although there are some things you can do to prevent it which will be discussed later in the article. Some credit card processors will also discuss this with you before you sign on with them. For now, it is good to know how the process is done. Here are the basic steps of the chargeback process.
- When one or all of the reasons mentioned above happens, the customer will most likely make a complaint to his or her issuing bank. This is the start to the chargeback process.
- The issuing bank will check if there is any validity to this claim. This will involve an investigation on the transaction done. If the complaint is deemed invalid, the dispute will be declined and the processing fee will be charged. Depending on the issuing bank, the processing fee can either be charged to the customer or the merchant.
- If the bank finds out that the dispute is valid, it will give the provisional credit back to the customer and will start the chargeback process with the merchant’s bank.
- The merchant bank will then conduct an investigation of its own to check the validity of the chargeback request. A notification will be sent to you, the merchant, of the pending request.
- If the complaint is invalid the money won’t be removed from the merchant’s account. If it is proven to be valid though the money will be taken out of the merchant’s account and given to the issuing bank.
- Before any money is given from the merchant to the issuing bank, documents proving the validity of the transaction will be requested from you. With all the steps involved, the chargeback process might take from about six weeks up to six months. The best credit card processing companies will help with the process if need be.
How Much Will It Cost?
As already mentioned, accepting credit cards can be greatly beneficial and lucrative for your business. But the necessary evil of chargeback cannot be displaced and it might prove to be expensive for you. This is, if you ever find yourself on the other end of a chargeback request. Chargebacks mostly happen when the transaction is done online, there is more risk for fraudulent activities because you can’t see the credit card physically. The cost of a chargeback may range from $0-100, but you would lose the sale of your product. Another cost would be if you have shipped the product already. Shipping can be expensive and an added loss to your business.
How to Request
For the chargeback process to commence, a retrieval request will be sent. This is the request for the sales draft you have made during the transaction. The request will usually include information relevant to the chargeback. This will include the account number of the cardholder, the date the transaction was made, the amount and other pertinent information about the transaction done. The bank will usually give you about ten days to accomplish and gather all the information required. There are some credit cards processing service providers that will assist you with the chargeback process. So be sure to get the best one out there. If you want to know which is the best, you can read credit card processing company reviews available anywhere on the internet. You wouldn’t have to be alone on this process.
How to Prevent It
Because chargeback can cost you money and time, you should follow the tips that will be mentioned below to avoid and prevent chargebacks.
- This is very important and the first step in avoiding raising complaints. Do not deal in shady business. If you say you are going to deliver a product, then do it. And don’t deliver substandard or faulty products, so there is no chance of them being returned.
- Customer service. If you have a great customer service, this will encourage your customers to go to you first if there are problems. They wouldn’t have to file a complaint with their issuing banks if you can solve the problems on your own.
- Verify the credit card holder. Many fraudulent claims come from stolen identities and cards. So one way to prevent chargeback is to verify the identity of your buyer. Look for red flags that will warn you that you might be dealing with a possible fraudster. Examples of red flags would be: multiple orders using different credit cards but sent to the same address; bulk orders with new clients; customers requesting for express delivery. There are more warning signs but these are the most common. Credit card processing companies can also help with the verification of the card holders.
Online credit card processing can be dangerous but there are measures you can do to stay safe. Chargebacks can be expensive, not to mention an inconvenience for you and the customer too. But the processing company can be a big help with this problem, so be sure to get the best credit card processing companies available. Read the reviews of the credit card processing company to get an idea about how they do their business.
Still can’t decide which is the best credit card processing company? Go to CrowdReviews.com’s website now and read the reviews.
Jeev Trika
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