Understanding Chargebacks

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Do you enjoy giving back money? Probably not.

Chargebacks or sometimes referred to as a payment dispute is a payment that has been reversed back to the consumer. It's a form of protection for the consumer, but is pulled out of the pocket of the business. It is up to the merchant to prove that the transactions are real and with legitimate proof that a bank needs to approve of. Without the right proof, often the consumer wins, whether or not the transactions happened.

Source: chargebacks911.com

However, this isn't automatic and often it needs to go through several days of claims and processing in order to be validated. During that time the consumer and the business owner are without money.

Shopify's Reasons for the Reversal

"Most chargebacks are initiated due to fraud, but sometimes the consumer initiates a claim after receiving an item. In that case, it’s not a true fraudulent transaction so businesses refer to it as “friendly fraud.” Either way, it costs companies money."

Here are a four of the usual categories that a chargeback falls under when a credit card claim is made:

  • Fraud the purchase was not made with the buyer’s knowledge or consent. This is the most common reason for a chargeback.
  • Quality the buyer never received the item they paid for.
  • Clerical the buyer was billed more than once for the same item, or a return was made and refund due.
  • Technical the buyer does not have the funds in their account to cover the cost or due to a bank error.

Chargebacks are great for the consumer when their money has been mishandled. For example, when a company runs a credit card after a subscription has ended or been cancelled. During the 2020 pandemic, I cancelled my gym membership. They continued to automatically bill me and charge my credit card for 3 months. I had to issue a chargeback because the gym was not responsive to my emails or calls. My credit card company did most of the work.

"Whether the chargeback dispute was legitimate or not, having a high volume of chargebacks can be really damaging for your business. In fact, if chargebacks account for over 1% of your total transactions, you could be classified as a high risk business by the payment processors, incurring in high costs, high fees, and other damaging consequences such as being put on a MATCH list (Member Alert To Control High-risk Merchants)." Source MYMOID

How do you keep chargebacks from happening as a business owner? There are a few steps that you can do to lower the risk of chargebacks. One being, keep and maintain records of transactions, invoices, confirmation emails and any follow-ups.

"Upon delivery, always ask for signature – if the seller isn’t able to prove that the item was shipped, he is much less likely to win the dispute." - MYMOID.com

Have disputes go through customer service. Have easy ways for your customers to contact you with questions rather than take immediate action to issue a chargeback. There are times when a consumer may not remember making a transaction or a transaction may not be labeled something recognizable to them in the billing history. This will cause them to think they were inappropriately charged. However, a customer service representative may jog their memory and help them recognize the transaction. Arguably, the most important piece of advice is to react quickly. After a claim is filed, you have a limited amount of time to react.

"Take note of all applicable deadlines, format your documentation properly according to the requirements, study carefully the reason code, and prepare a chargeback rebuttal letter to accompany your evidence. It might be helpful to prepare a response template with all the general information ahead of time, and just fill in with specific-case evidence when a chargeback happens." MYMOID

ChargeOver fights chargebacks and recovers revenue with an integration to Midigator. This integration teams up with Midigator, a product that focuses on chargeback prevention and chargeback notifications. When a chargeback is requested the credit card company will be able to relay information in real-time that they collect from ChargeOver! If the chargeback is qualified it will then notify ChargeOver and it will be recorded and reported. This feature will save a lot of time and paperwork since it is all done digitally and mostly automated instead of by mail with hard copies.

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