It is safe to say that for nearly all of us, either we or someone we know has found a charge on their bank or credit card statement that didn’t seem to make sense. In the worst of cases, the charges were made by someone other than the card holder, meaning that at least one form of fraud had been committed against them. In other instances, the cardholder simply didn’t recognize the descriptor for the product or service that the charge was connected to. These two situations would leave the card holder confused and inquisitive as to how they should react. In order to find answers, they would often contact the bank connected to the card used in the transaction, and inquire about how to receive a refund. When consumers request a refund for an erroneous charge on a bank statement, they file what is called a chargeback dispute.
Chargeback disputes are not only filed because the customer is confused about a charge. There are many reasons that a customer might request a refund from their issuing bank as opposed to the merchant themselves, even if they know that they did in fact authorize the charges. If the customer never received the good or service that they requested and paid for, while their first step would often be to contact the merchant directly, this sometimes proves unsuccessful. In addition, customers who returned the products or goods back to the merchant in order to receive a refund, may also dispute the charges on their accounts, should they not be refunded for the returned product. A third common reason that consumers file chargebacks is if the charge they authorized is not the same amount that the product or service was initially priced. If a customer is accidentally charged twice for the same purchase, or for any reason they are charged more than they initially authorized, they might dispute the charge to their bank or credit card issuer. All of these instances, and of course some that have not already been mentioned, result in customers contacting what is known as an issuing bank, to file a dispute of charges, or a chargeback.
When the customer files a dispute with the issuing bank, they then must determine if the dispute is valid or invalid. If the dispute is found to be a valid chargeback, the issuer sends the information to the acquiring or merchant’s bank. At this point, the issuing bank will issue a temporary credit in the amount of the disputed charge to the customer who initiated the chargeback. The acquiring bank then begins to investigate the charge, to determine if there was or wasn’t appropriate authorization. The case is then reviewed by the acquiring bank, who resolves the issue themselves if applicable, or sends the information to the merchant themselves to review and respond. At this point, the merchant investigates the customer’s history with their company. If they so choose, they may re-present the charge through their acquiring bank, to the issuing bank. In order to represent the case against the customer’s chargeback, the merchant then gathers information on the transaction and customer from all of their sources, including the CRM used to place the order, the website where the customer entered his or her information, the gateway page where the transaction is made, a proof of delivery or whether physical or digital, and the evidence that the information provided by the customer corresponds with the cardholder’s information. After the merchant assembles their case, they send it to their acquirer, who then reviews the information and sends it to the issuing bank. The issuing bank then determines whether or not the charge was a valid, authorized charge by the card holder, or was for some reason unauthorized and therefore, an invalid purchase. When the charge is proven to be erroneous, the funds are then taken from the merchant’s bank, and returned to the original customer or cardholder. The merchant is then charged an additional chargeback fee, and is held responsible for the error. On the other hand, if the chargeback is proven to be invalid, and the merchant is able to prove that the customer did, in fact, authorize the charge, the customer is recharged for the purchase, and the merchant, however, is still charged a chargeback processing fee.
While chargebacks are never positive aspects of owning an eCommerce business, the more information the merchant has on the entire process, the better off their business is. Representing chargebacks and understanding how to prevent them in the future, are key to protecting themselves from additional fees and losing gained revenue. Appropriate descriptors, successful customer service, plenty of communication with the customer, and the use of confirmation of Terms and Conditions at the point of purchase, are all helpful in the prevention of chargebacks, as well as the fight to prove authorization. While the merchant is rarely at fault in chargeback disputes, they are always responsible for the protection of their customer’s information, and their company’s reputation.