Chargebacks are there to protect consumers from fraud, but what happens if your business is asked to pay a ‘chargeback’? Find out what they are and how to protect yourself from them.
What is a ‘chargeback’?
A chargeback is the process followed when a cardholder disputes a transaction on their bank account. Cardholders are able to dispute any transaction they have on their bank account, but the chargeback process is in place to ensure that only fraudulent transactions or purchases that don’t live up to expectations are refunded back to the card holder.
There are several situations that may result in a chargeback being raised:
- Fraud or unauthorised charges to an account
- Goods or services not delivered/provided
- Damaged or defective goods
- Incorrect charges or errors such as a duplication
What happens if you receive a chargeback request?
If a chargeback is made against your business, rest assured that Tyl is here to help. We’ll get in touch with you to gather all the necessary information to try to defend the chargeback, if there is a valid case to do so.
The chargeback will detail the reported reason for the chargeback, the date the transaction occurred and the transaction amount. In addition, we’ll ask you to share some evidence of this transaction to help us defend this chargeback for you. For example, a chargeback related to a ‘card not present’ sale where goods are collected from the business premises, evidence to support your case could include a copy of customer signature or ID. You’ll then need to reply with this information by the date given.
How do chargebacks work?
Here’s the process that usually occurs for chargebacks:
Cardholder disputes a transaction on their account through their card issuer (bank, etc.).
The cardholder must provide details to the card issuer of why they’re disputing the transaction.
The card issuer reviews the dispute.
If the card issuer accepts the dispute, they pass it onto the card network (Visa, Mastercard, Amex etc.).
The card network reviews the transaction.
The card network then either requires the card issuer to pay (if there is a liability shift) or sends the dispute to the merchant acquiring bank (Tyl).
The merchant acquirer assesses the claim.
The merchant acquiring bank (Tyl) will either:
- send the dispute back to the card network stating that the card issuer is at fault
- or they will forward the dispute to the merchant (i.e., you) with guidance on the type of evidence required to be able to defend the chargeback
The merchant reviews the claim.
If the dispute is passed to the merchant (i.e., you), the merchant can then either accept the chargeback, or they can provide compelling evidence to dispute the chargeback. An example of evidence may be a valid delivery confirmation for goods sent against a claim for non-receipt.
If compelling evidence is provided to defend the chargeback…
Tyl will review the evidence and return the chargeback to the card issuer to review.
The card issuer will review the evidence and make a final decision.
While Tyl will attempt to defend the chargeback in the best manner possible with the evidence provided, there could be times when the card issuer’s decision goes in favour of the cardholder based on the evidence received. In such situations, the merchant may lose out on the funds from the transaction, and a charge may be added to their invoice.
Reducing the risk of chargebacks
There’s no sure-fire way to rule out the chance of chargeback requests from customers, but there are a few things you can do to reduce the risk of having chargebacks made against your business:
Review the receipt
When you are accepting payments with the card physically present, you should review the receipt, before handing over the goods to the cardholder. Check that the sale has been taken as a “Card Present Transaction”. If the receipt says “Keyed”, void the transaction and ask the customer to repeat the transaction again using Chip and Pin. If for any reason they are unable or unwilling to do so, you could ask for an alternative payment method.
Be careful with phone and postal payments
It’s important that you’re careful when you’re taking orders and accepting payments over the phone or by post/mail. You should always input the customer's address, and the CVC code, so that the Address Verification Service can be performed. This will provide further comfort that additional details have been verified, but does not 100% confirm that the customer is genuine. You can also consider asking for a form of identification upon delivery of the goods.
Trust your suspicions
If you have any suspicions during the transaction, it’s a good idea to do some further checks before you continue. There are a number of things you can look out for when you’re taking payments from customers that indicate a suspicious transaction:
- If they’re not sure of their address details
- If they claim they’ve forgotten some details
- If they use multiple cards after one has been declined
- If they’re making an unusually high amount of transactions
- If they’re buying unusually large quantities
- If they’re buying a high amount of identical items
- If they give you the right billing address, but then ask for their order to be sent to a different address
Use 3D Secure authentication online
If you’re accepting payments through your website or using payment links, you should ensure you’re using 3D Secure authentication. If a card issuer confirms that a card is enrolled in 3D Secure and the cardholder authentication is successful, then the liability for that transaction shifts to the card issuer (i.e., the bank).
Help customers know it’s you on their statement
Sometimes, customers are not able to recognise the name of the merchant when they get their card statement. This usually happens when the trade name is different from the legal name the business is registered under. You could upload your logos and some basic business information to a secure Mastercard central database. This archive will then be used to drop company logos onto customer statements, so they can see at a glance who they have been shopping with. You can find more about beating fraud with your logos here.
“A chargeback is when a customer disputes a transaction on their statement. You may be liable to refund the money”