Chargeback Expertz provides a Monthly and Quarterly Analysis

As you know, customers or cardholders obtain credit cards from banks, which are referred to as the "issuing bank." A chargeback (also known as a reversal) is a form of customer protection provided by the issuing banks, which allows cardholders to file a complaint regarding fraudulent transactions on their statement. Once the cardholder files a dispute, the issuing bank makes an investigation into the complaint.

Once the transaction is proven to be indeed fraudulent, the bank will refund the original value to the cardholder. From the merchant's point of view, if you do not prove the transaction to be legitimate, the bank will take back the entire value of the transaction from your account, along with an additional fee. This chargeback fee will range from $0 to $100, depending on the merchant bank sponsoring your

account. If the cardholder complaint is proven untrue, no refund is requested from the merchant, though additional processing fees may be charged. For obvious reasons, it is best for your business not to get involved with chargebacks. With situations like these, the merchant stands the risk of losing products or services that have already been sold, the payment, the fees incurred for payment processing, money for chargeback penalty, or even possible commissions for currency conversions. It is thus best to avoid chargebacks at all times. Also, note that merchant accounts receiving too many chargebacks can be labeled by credit card companies as fraudulent, and this can be potentially damaging to the image and the existence of your business. Know also that credit card issuing banks take chargebacks seriously, because they are at the most advantage. They don't only levy fees, but they can also hold merchant remittance up to three months to cover the fraud, or increase their commissions if they choose to label your account "risky."

By law the cardholder has two years to file a dispute. Your sales can be reversible for two years... That means saving documentation for two years... Most banks will have a policy against handling disputes that are more than six months old but if the cardholder pushes it they have two years to file a dispute.

Reasons for Chargeback

As a merchant, you have to be fully aware of the most common reasons why merchants receive chargebacks. These are the circumstances that you also need to avoid at all costs. Note that most, if not all, chargebacks are initiated by cardholders. These are primarily due to inconsistencies in their credit card statements.

Fraudulent Transactions

The most common cause for chargeback is fraudulent transactions. This happens when the credit card is used without the authorization and consent of the cardholder. In cases like these, the merchant is held solely responsible.

Credit Not Processed

Another common type of chargeback occurs when the customer may have returned the merchandise to the merchant (e.g. when the cardholder receives an item different from what he expected), requested to get their money back but said credit was not posted to their account. In these situations, merchants are also held liable for the charges.

Item Not Received

This is one of the most commons reason for chargebacks today. This happens when the customer did not receive the item which they paid for by credit card. As in the previous situations, the merchant is charged accordingly.

Technical Problems

Many chargeback requests are due to technical problems during the payment processes. Technical problems between the issuing bank and the merchant may lead to cardholders being charged twice for the same transaction (termed as duplicate processing). Problems with the authorization process can also lead to account being charged, even if the transaction was declined.

These are the four main reasons for chargebacks. There are a few more detailed reasons, which can be attributed to situations such as faulty cards and human errors made during the payment process. These cases, however, may be beyond your control as a merchant.

The Chargeback Process

It can sometimes be difficult to stay away from chargebacks. What must you do when it happens to you? It is good to take a look at what to expect when a chargeback request against you is requested by a cardholder. It is unfortunate that many merchants are actually not aware of the tedious process that they need to go through. Here is the entire process laid out in a step-by-step manner:

Step 1: The cardholder files a complaint by contacting his or her issuing bank about the erroneous transaction.

Step 2: The issuing bank checks whether the dispute is valid. If the bank finds the request invalid, the dispute is simply declined and the customer is charged with a processing fee.

Step 3: If the issuing bank sees a potential error, a provisional credit is provided to the cardholder. The bank then initiates the usual chargeback process, to obtain credit from the merchant's sponsoring bank.

Step 4: The merchant bank sponsoring the account then checks whether the chargeback is valid or not. They usually send you a notification to inform you of a pending chargeback request.

Step 5: The merchant's sponsoring bank then does some research on the validity of the chargeback claim. If the chargeback is found to be invalid, they will decline said chargeback and inform the card-issuing bank.

Step 6: Assuming the chargeback is invalid, the amount of the chargeback is removed from the merchant's account and the merchant's bank will notify the merchant about the outcome.

Step 7: If a processing error has indeed occurred, the corresponding correction is then sent to the card-issuing bank for re-presentation.

Step 8: The merchant will be asked to provide the needed documentation and proof to remedy the chargeback. If the documentation provided is satisfactory, the claim for chargeback is denied and the customer will be charged once again for the sale. If the documents seem to be unsatisfactory, the chargeback amount will be provided to the customer.

As is probably obvious, the chargeback process is a very complicated one and involves a number of different parties to remedy the chargeback. As a merchant,it will take some time to manage and remedy a chargeback. A typical chargeback process lasts anywhere from 6 weeks to up to 6 months. If eachstep takes the maximum amount for completion, then it should not be surprising for a chargeback to pressure you for what will seem like forever.

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