Frequently Asked Questions

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Chargeback Process


How do chargebacks work?

Chargebacks are confusing. Period. In fact, we spend most of our time answering this very question. Basically, a chargeback is initiated by a cardholder or issuing bank, and received by the acquiring bank who passes the information to the merchant. The card networks sit at the middle of the process, facilitating the movement of funds between the parties. For more insights on how chargebacks work, be sure to check out our Chargeback Process: Explained blog post.

How does the chargeback process work?

Please see “How do chargebacks work?”

What is a payment gateway?

A merchant service that authorizes credit card or direct payments processing for merchants, typically provided through an e-commerce application service provider.

What is a processor?

An entity that is affiliated with a card network and provides authorization and/or clearing and settlement services on behalf of a merchant or an acquirer.

What is an acquiring bank?

The financial institution that initiates and maintains contractual agreements with merchants for accepting and processing credit card transactions.

What is an issuing bank?

The financial institution that issues payment cards and maintains the contract with cardholders to ensure repayment.

Chargeback Ratio


How do I calculate my chargeback ratio?

A chargeback ratio can be calculated by taking the number of chargebacks received for a given time frame and dividing that number by the total number of sales transactions processed in that given time.

If I win a chargeback, will it still count against my chargeback ratio?

Unfortunately, even if a chargeback is won, it will still count against your total chargeback ratio. Prevention and mitigation of chargebacks through following chargeback prevention best practices, fraud screenings, timely response to retrieval requests, and Chargeback Alerts are the best way to prevent chargebacks.

What’s a chargeback ratio?

A chargeback ratio is the number of chargebacks-to-transactions that a merchant has. This percentage is used to determine a merchant’s risk category.

Will my merchant account be closed from too many chargebacks?

Merchants should strive to keep their chargeback ratio below 1% as they may be placed in “excessive” chargeback monitoring programs, incur additional fees, or have their merchant processing account shut down alltogether.

Chargebacks


How will I know if I’ve received a chargeback?

Notification of a chargeback can happen through a few different channels. Merchants can receive chargeback notices via mail from their acquirer or in some cases this data is available through your processor portal. Some processors may also offer the option of email alerts of disputes as well. However you receive a chargeback, it will be helpful to understand how your processors prefer to receive your chargeback responses and how long you have to respond.

What happens when I receive a chargeback?

When a chargeback occurs, a reversal of funds back to the customer takes place and you’ll likely be assessed a chargeback fee by your processor. You have two options as a merchant: accept the chargeback or submit a representment to challenge the cardholder’s claims.

What is a chargeback claim on Amazon?

Any chargeback representing an order placed on Amazon. Also referred to as ‘Charge Disputes’, these chargebacks can be addressed through the Amazon Seller Services Center.

What is a chargeback fee?

Monetary fee assessed by processors upon merchants for every chargeback received. Chargeback fee amounts vary depending the type of processor and the risk category of the merchant.

What is a chargeback in PayPal?

A customer dispute that occurs on PayPal’s payment platform. Buyers and sellers can settle disputes in the PayPal Dispute Resolution Center.

What is a chargeback in retail?

Part of what makes chargebacks so confusing is that the term is used to represent various meanings, depending on the situation. One of those nuances pertains specifically to retail. Not only do retailers field chargebacks in the customer dispute sense (see FAQ question ‘What is a chargeback?’) but retailers can also chargeback full or partial value of goods to the wholesaler if an error occurred. So, instead of a dispute made a customer to a retailer, chargebacks can also refer to disputes made by a retailer to a supplier.

What is a chargeback settlement?

The date that a chargeback case is closed, or settled, between a customer and a merchant.

What is a chargeback?

A chargeback is a transaction reversal meant to serve as a form of consumer protection from fraudulent activity committed by both merchants and individuals.

What is a credit card chargeback?

A credit card chargeback is any chargeback that occurs from use of a credit card. See also ‘What is a chargeback?’

What is a customer dispute?

A customer may question a charge for a variety of reasons; such as suspicion of fraud, issues related with products or services, or clerical issues. It’s important to understand your customer base to prevent chargebacks before your customer contact their bank to file a chargeback.

What is a pre-compliance chargeback?

A pre-compliance chargeback is used when a transaction violates a network association rule. These cases are initiated by the issuer or processor, usually for technical reasons. Management of these disputes falls on your processor, but merchants still need to ensure their processors are responding.

What is a return item chargeback?

A return item chargeback can be used to represent either of the following:
1. A fee withdrawn from a customer’s account due to a charge or check processed by the bank that the processor ended up rejecting. In other words, an unpaid check.
2. A demand by a credit-card provider for a retailer to make good on the loss on a fraudulent or disputed transaction.

What is Visa chargeback?

Any chargeback that is processed through the Visa card network.

Why do chargebacks happen?

At the case-by-case level, there are infinite reasons why a chargeback happens. Fortunately, the numerous possibilities ultimately result in four main dispute drivers: true fraud, friendly fraud, chargeback fraud, and actual product or service issues. Every chargeback a merchant receives will come as the result of one of those four situations.

EMV


I only sell online, does EMV matter to my store?

While the shift to EMV chip cards focuses on stopping card-present fraud, instances of card-not-present fraud is known to rise in post-liability-shift environments.

What chargeback reason codes are associated with EMV?

The reason codes associated with EMV are: Visa reason code 62, Mastercard reason code 4870, Mastercard reason code 4871, Discover reason code UA05, Discover reason code UA0, American Express reason code F30, and American Express reason code F31.

What is EMV?

Specifications that define a set of requirements to ensure chip cards and point-of-sale terminals operate together successfully. Formerly stood for Europay, MasterCard, Visa (the entities that developed the technology and standards).

What is the chip liability shift?

The change in financial responsibly for fraudulent transactions. Liability falls on the entity without chip-accepting/enabled technology.

Friendly Fraud & Chargeback Fraud


How can I prevent chargeback fraud?

Chargeback fraud is difficult to prevent, as the best way to address this type of fraud is through reactionary measures. However, merchants can dissuade would-be chargeback fraudsters by displaying chargeback protection information at the point of sale. This typically includes information that the merchant takes chargebacks seriously and all those who attempt chargeback fraud will be blacklisted.

How can I prevent friendly fraud?

There are a handful of basics that will stop disputes that occur as a result of friendly fraud. First, make sure your merchant descriptor is clear and includes contact information. It should be easier for the cardholder to contact you, the merchant, to inquire about a questionable purchase than it is for them to dispute the transaction with their issuing bank. Also, clearly state and make customers aware of and agree to your return or cancellation policies at the time of purchase.

How do friendly fraud and chargeback fraud differ from true fraud?

True fraud occurs as the result of the acceptance of a stolen payment card. When a cardholder is the victim of true fraud, the issuer typically closes the account and issues a new card and account to the cardholder. Chargeback fraud and friendly fraud do not occur as the result of the stolen payment card. Instead, the legitimate cardholder knowingly participated in and authorized the transaction being disputed.

What is friendly fraud?

The accidental or unintended misuse of chargeback rights by a cardholder in regards to an authorized and legitimate transaction.

What is the chargeback scheme?

A chargeback scheme, more commonly referred to as chargeback fraud, is the purposeful misuse of cardholder chargeback rights in order to retain goods or services rendered and the transaction amount.

What’s the difference between friendly fraud and chargeback fraud?

The critical point of difference between chargeback fraud and friendly fraud is cardholder intent. In chargeback fraud, the cardholder is operating under malicious intentions and is purposefully attempting to commit fraud against a merchant. Friendly fraud involves no malicious intentions, instead just simple misunderstanding. The distinction matters because it’s the difference between mending a customer relationship and blacklisting them.

High Risk


Am I a high risk merchant?

A high risk category is determined by a number of factors, such as whether the business is in the high risk category, if the business is off shore, and whether it employs questionable marketing or sales strategies. Some common high risk categories include: airlines, online chat or personals line, credit counseling or repair, travel agencies, neutraceuticals or supplements, subscription based services, and gambiling.

What are high risk merchants?

A merchant that is categorized as high risk due to the nature of its business, is at a high risk for customer disputes. Examples include merchants in the airlines, online chat or personals line, credit counseling or repair, travel agencies, neutraceuticals or supplements, subscription based services, and gambiling.

What is an Merchant Category Code (or MCC)?

A numerical code used to categorize business types.

What is the MATCH list?

Based on MATCH, a database that includes information reported by processors regarding merchants whose merchant accounts have been terminated. It’s a mandatory system for acquirers in the United States and is sometimes referred to as the Terminated Merchant File (TMF).

What is the Visa High Brand Risk Chargeback Monitoring Program (HBRCMP)?

A legacy chargeback monitoring program to evaluate and address excessive chargebacks for merchants who have a ratio over 1%. This program and two others have been rolled into a new program called the Visa Chargeback Monitoring Program (VCMP) which sets a standard of 1% chargebacks for every 100 transactions across all merchants.

What is the Visa Merchant Fraud Program?

A program that monitors chargeback activity for all U.S. acquirers and merchants every month. The acquirer is notified when a merchant meets or exceeds a specified chargeback threshold.

Pre-Arbitration & Arbitration


How do I prevent pre-arbitrations?

Cardholders are entitled to additional dispute rights if a chargeback is reversed in favor of the merchant,. While it is not possible to prevent all pre-arbitrations, providing as much compelling information to refute the cardholder’s claims in the initial chargeback representment is the best practice for avoiding pre-arbitrations.

How long do I have to fight a pre-arbitration?

Generally acquirers allow only 10 days in which to respond to a pre-arbitration, however some processors may require this information to be submitted sooner.

What is a pre-arbitration?

Before filing an arbitration case, the customer must file a pre-arbitration case in an attempt to resolve the dispute; it must allow the other participant at least 30 calendar days to respond before the arbitration case is filed. Pre-arbitration is also called a second chargeback or a second presentment.

What is arbitration?

This occurs when a cardholder has exhausted their chargeback rights, but the issuer believes the acquirer’s second presentment is invalid or if the issuer did not receive documentation within 10 calendar days of the second presentment. Arbitration rulings are determined by the card network instead of the issuing bank. Merchants incur a $250 fee when a dispute escalates to arbitration. If the card network determines the customer dispute to be invalid, the merchant is refunded the $250 fee. If the customer dispute is decided to be valid, the merchant is assessed an additional $250 fee.

Prevent Chargebacks


How can chargeback alerts help me?

Chargeback Alerts provide merchants with early warning notifications of customer disputes before they are processed and become chargebacks. Through key partnerships with providers and a wide network of issuers, we are able to notify merchants, process a full refund to the cardholder, and prevent chargebacks before they even hit your merchant account and negatively impact your chargeback ratio. This is especially helpful for merchants who are watching their chargeback ratio closely or operate in a high-risk industry.

How to avoid chargebacks?

Please see “How to prevent chargebacks?”

How to prevent chargebacks?

True fraud chargebacks can be prevented by following a set of best practices; including using tools pre-sale fraud screening and scoring, and early dispute notifications.

What are chargeback alerts?

Early warning notifications of customer disputes that will be processed as chargebacks unless the merchant takes action. Depending on the issuer in the transaction, a merchant has between 24 and 72 hours to respond.

What is a merchant descriptor?

The line of copy that identifies transactions on a cardholder’s account activity and statement.

Reason Codes


What is a reason code?

An alphanumeric code associated with a chargeback that represents the source of the customer dispute and used to decipher operational indications and what to include in a response.

What is chargeback reason code 83?

Reason Code 83 is a Visa reason code which claims that an unathorized use of a card has taken place through an online, phone, or mail order.

What is the difference between fraud and non-fraud chargebacks?

Fraud chargebacks differ from non-fraud in that they are instances in which the cardholder claims their card was used fraudulently or without their knowledge. Non-fraud chargebacks are usually transactions the cardholder is aware of and is disputing for a reason such as non-receipt of merchandise, defective goods, service cancellation or refund requests.

Why do reason codes matter?

Providing the correct information to address a specific reason code in your chargeback is integral in winning chargeback. For example, providing information about a customer cancelling services would not be very well suited for a chargeback in which the customer is claiming they never received the product.

Representment


What does late presentment mean?

The issuer recieved a transaction after the 30-day time frame; the account number is now blocked or closed.

What is a representment?

The process merchants take to dispute a chargeback by gathering compelling evidence in an effort to disprove the cardholder’s claim to the issuer.

What should I include in my chargeback representment?

What you include in your representment document will vary depending on the reason code given by the issuer. Fraud reason codes will usually require AVS and CVV confirmation, while service-based reason codes like “Service Not Rendered” will require a work order or proof of service. Ultimiately, the chargeback representment prepared by a merchant must be reason code and processor specific to give the merchant the best chance at disproving the customer dispute.

Where do I send my chargeback representments to?

A fax number is usually provided on chargeback notifications you receive via mail from your acquiring bank. However some processors support online upload of representments or email and SFTP delivery options. You should contact your processor for the options available to you.

Responding to Chargebacks


Can I refund the customer who has disputed a purchase?

It is not advisable to credit a customer after receiving notification of a dispute, as your merchant account has been debited and the customer credited as a result of the chargeback. Instead, respond to the chargeback to recover the lost revenue.

Can I respond to a chargeback?

If you have received a chargeback and are within the time frame specified by your processor, you can and should respond to any and all chargebacks. Too often, merchants forego submitting a response to chargebacks coded as fraudulent, or occurring at the result of true fraud. When compelling evidence is submitted to fraudulent chargebacks, 70-85% of those disputes are ruled in favor of the merchant. Which means that true fraud wasn’t really the culprit and the revenue is now recovered by the merchant.

How do I know if I’ve won a chargeback?

If you have won a chargeback, a credit for the amount of the chargeback will be reflected on your next merchant statement, less the chargeback fee. Some processors also provide notifications of reversals via mail or through an online processing portal.

How do I prove that a transaction is valid and not fraudulent?

Responding to claims of fraud can include various data points. However, the end goal remains to prove that the cardholder was aware of the transaction and provided authorization. Merchants can do so by providing information like AVS Matches, CVV confirmation, matching billing and shipping addresses with proof of delivery, signed receipts, and documentations of acknowledgements by the cardholder such as signed contracts or acceptance agreements. For a detailed template to responding to Visa Reason Code 83 – Fraudulent Transaction – Card Not Present, check out our free reason code specific response template.

What do I do if I receive a chargeback on a gift card?

When a merchant receives a chargeback on a gift card, it is important to unload the funds from the gift card as soon as possible and immediately deactivate the gift card to prevent further use. This will prevent the fraudster from using the available balance on the card while receiving a credit from the chargeback. Services like Chargeback Alerts will give merchants a head start on refunding the associated bank account the gift card was purchased from and unloading and deactivating the gift card.

What happens if I accept a chargeback?

If a chargeback is accepted, a merchant accepts liability for the chargeback and the cardholder will retain the funds issued to them from the initial chargeback credit.

What happens if I lose a chargeback?

If a chargeback is lost, then the cardholder will retain the credit issued to them as a result of the initial chargeback.

What happens if I refund a customer?

If a full refund was issued to a customer prior to a chargeback, then you simply need to provide proof of the credit to the issuer for the chargeback to be reversed. If you refund a customer after you’ve received notification of a dispute, then you effectively credit the cardholder’s account a second time, as the chargeback has already provided a refund to the customer.

What is a chargeback monitoring program?

Chargeback monitoring is a service where a merchant account is monitored on a daily basis and notifications are issued for any new chargeback or existing dispute updates. This service allows merchants to stop spending time managing chargebacks, while having the ability to make better, more informed business decisions based on their chargeback data.

What is a chargeback reversal?

Also known as a ‘Reversal Acceptance’, a chargeback reversal is a notice that the chargeback representment submitted to a an issuer has been reversed and a temporary credit has been issued to the merchant account. This indicates you have won a second presentment or a chargeback, however the credit may only be temporary as the cardholder has additional dispute rights and may push the dispute to arbitration.

What is a CRM?

All methods and technologies utilized by a company to manage and analyze customer interaction data from acquisition to post-purchase and beyond to improve customer relationships, retention, and revenue.

What is a reversal denial?

A reversal denial is a notice that the chargeback representment submitted to an issuer has been denied and the chargeback stands. In other words, the merchant has lost the chargeback.

What is an auto-representment?

An auto-representment is a chargeback that is resolved automatically by the processor on the merchant’s behalf without further action or intervention from the merchant.

Retrieval Requests


How long do I have to respond to a retrieval request?

Merchants generally have between 10 to 20 days in which to respond to a retrieval request. This time frame will vary depending upon the issuer.

What happens if I don’t respond to a retrieval request?

It is critical that merchants respond to retrieval requests in a timely manner, as failure to respond will immediately result in a chargeback and a negative impact on their merchant account. In addition, If a representment is insufficient or lacking in information, this will also result in a chargeback.

What is a retrieval request?

A request from an issuer to a merchant to provide specified transactional information within 10 days or see the dispute become a chargeback.

Time Limits


How long do I have to fight a chargeback?

In general, Visa and Mastercard transactions allow the acquirer 45 days from the date the chargeback was initiated to submit a response. However, payment processors will often set their own due dates to ensure they have enough time to process a response before it is sent to the network for review. Amex and Discover are unique in the fact that they act as both the issuer and acquirer. These networks will set specific due dates in which a representment must be submitted.

How long does a cardholder have to dispute a transaction?

The length of time a cardholder has to dispute a purchase depends on the individual circumstances of the dispute. For the majority of cases, cardholders have 120 days from the original date of purchase in which to dispute a transaction.

How long does a chargeback take?

Chargebacks are a long and complex process.Typically the entire chargeback cycle takes about 45 days. However, certain chargeback cases can take up to 6 months to resolve.

True Fraud Prevention


Can I prevent 100% of true fraud?

Yes—if you stop accepting payments, you’ll stop 100% of true fraud. Identity theft is an unfortunate reality in commerce, and strict fraud prevention tools end up blocking a considerable volume of legitimate customers. It’s important for merchants to have the right front-end solutions to defend against a large-scale attack, but not to go overboard at the cost more lost revenue from real customers.

How can I prevent true fraud?

Merchants can prevent true fraud, or the acceptance of stolen payment information, by deploying various fraud prevention solutions to the transaction process. The typical fraud prevention technology stack for commerce can include AVS, CVV, 3D secure, email verification tools, fraud scoring, device fingerprinting, and similar preventative tools.

What is AVS?

A fraud prevention tool that matches the billing address of the purchaser against the address that the card issuer has on file, ensuring that the person making purchase with the credit card is indeed the valid cardholder.

What is CVV, CVV2 or CVC?

CVV is a card security feature where a unique check value is encoded on the magnetic stripe of a card, used to validate information during authorization. CVV2 is a card security requirement found at the end of the signature panel or in a white box outside the signature panel on the back of payment cards. Finally, CVC is a three-digit value card security feature encoded on Tracks 1 and 2 of a magnetic stripe of a credit card.

What is fraud scoring?

Predictive fraud detection technologies that identify patterns of fraudulent activity and how those patterns differ from legitimate transactions; typically through assigning a numeric value to indicate likelihood of an individual transaction will be fraudulent.

What is Verified by Visa?

A global online authentication service used to make online shopping more secure for Visa merchants and cardholders. VbV provides merchants with added protection from fraudulent transactions and subsequent chargebacks.