It is always interesting to get the perspective of a person that works in a specialized field of the Payment Processing industry. We have interviewed Lou, our chargeback specialist from the Disputes department and he has given us answers to some basic questions about cardholder disputes and how to reduce the risk of chargebacks.

Q: When does a chargeback occur?

A: Chargebacks occur when the cardholder disputes the charge to their credit card and refuses to accept responsibility (refuses to pay) for the transaction.

Q: What are the most common reasons for a chargeback?

A: Fraud is the most common reason for a chargeback – when a credit card is used without the cardholder’s authorization or permission.

  • Fraud – unauthorized charge, lost or stolen credit card
  • Technical – incorrect or duplicate billing, failure to refund
  • Quality – product or service was not delivered, was defective or not as described

Q: What is the chargeback process?

A: Once the consumer starts the chargeback process with the issuing bank, our Disputes department receives a chargeback notification and the funds are reverted back to the cardholder’s bank account immediately. The return of the funds is initiated by the cardholder’s issuing bank and it is up to the merchant to prove that the transaction was legitimate in order to have the funds returned. After the account had been debited, the merchant has 15 days to provide documentation to dispute the chargeback.

Q: What can a merchant do to reduce the risk of getting a chargeback?

A: Here are some suggestions to help reduce the risk of chargebacks:

  • Confirm the customer’s identity with government issued ID, preferably driver’s license
  • Have clear terms and conditions in place; ask the customer sign for them and to keep the copy
  • Accurately describe all products and/or services
  • Use shipping services that offer shipment tracking services and/or trace numbers
  • Avoid manually keying in transactions
  • Train your employees to look for “red flags”
  • Use AVS and CVV verification fields in your Virtual Terminal
  • Keep all receipts, invoices, correspondence, a copy of the customer’s ID, and an imprint of the card (if possible)
  • Batch out daily to avoid “late presentment” chargeback
  • Use chip technology on your POS terminal

Q: What should every merchant keep in mind when running transactions?

A: The merchant is liable for transactions he or she processes. Potential chargebacks are basically a part of cost of doing business. Nobody can be 100% protected, so the best way to reduce the risk is to continuously educate yourself and your employees.

Pivotal Payments does not make decisions about chargebacks. Chargebacks are initiated by cardholders, and Pivotal is responsible for complying with all rules and regulations set by the card brand associations, including those related to chargeback. Part of our responsibility includes communicating chargeback information from issuing banks to our merchants.

The chargeback mechanism is complex and is not always easy to understand, but following these basic recommendations should help the merchants to reduce the risk of chargebacks and give them tools to handle potential disputes.