Introduction to the Chargeback Process

Chargeback

As a general rule, cardholders have the right to dispute any transaction processed. These disputes are called chargebacks, and are governed by a series of rules set forth by these entities. In the chargeback process, the burden of proof lies with the merchant.

The merchant will be given the opportunity to provide supporting documentation to prove the legitimacy of the transaction. If the merchant is successful, the transaction is credited back to his account. If the merchant is unsuccessful, or does not respond in a timely fashion, they will be financial responsible for returning funds to the consumer who filed the dispute.

Summary of Chargeback Process

When a chargeback is initiated, the Issuer gives the cardholder provisional credit. In turn, the Issuer sends a request to the merchant's Acquiring Bank. The Issuing Bank is often required to submit the documents that support the customer’s dispute. To facilitate the handling of the dispute, we use an “auto-resolve” database that automatically places the chargeback in a pending status, waiting for the Issuing Bank documents to arrive.

The system will auto-resolve the case in the event the bank documents do not arrive and will send the chargeback back to the Issuer. When the bank documents are received, the system may place the case in a queue for a chargeback operator to process, or automatically debit the merchant and generate the chargeback letter.

The chargeback letter gives the merchant about 8-10 days to respond. No second warning is sent in absence of a response. At times, the request comes in at a later time. It is IMPORTANT that the merchant always checks the “Respond by” date on top of the communication letter to insure that the response is sent on time.

A case number is assigned to each disputed item. The merchant must attach the correct case number to each page of the rebuttal paperwork. Cardholders may dispute a charge for various reasons (i.e. “Non-Authorization”, “Merchandise not received”), and often attach a letter of explanation to the output package. Merchant’s rebuttal must address each one of the customer’s complaints.

A rebuttal letter containing the merchant’s point of view should always accompany the paperwork. As a default, we send the letters to the business address indicated by the merchant. Once the rebuttal paperwork is received by the chargeback department, the case is reviewed and, if applicable, it is reversed back to the Issuer.

A credit to the merchant for the transaction amount will be granted in that instance. In the event the documents do not provide a valid reason to reverse the dispute, the Chargeback Department will try to contact the merchant for more information.

Chargeback fees will apply on each disputed item. Fees are debited as follows:

• MO/TO - Internet accounts: fees are debited immediately when the chargeback is initiated by the Issuing Bank.
• Retail accounts: fees are charged when the chargeback is in the working stage at EVO, and the merchant is given the time to respond. In the event the chargeback comes in, but it is immediately reversed back to the Issuer with no request of documentation on the merchant’s side, no charge will apply.

Preventing Chargebacks

Most chargeback situations arise at the point of transaction—at the time the transaction is completed—and most can be prevented with a little training.

Consider these tips to avoid potential chargebacks...

Card Present Transactions

• Do not complete a transaction if the authorization request was declined. Do not repeat the authorization request after receiving a decline.
   
• If you receive a “Call” message in response to an authorization request, call your authorization center. Be prepared to answer questions. The operator may ask to speak with the cardholder. If approved, write the authorization code on the sales receipt. If declined, ask the cardholder for another card.
   
• Make an imprint for all card-present transactions. If you have a point-of-sale terminal with a magnetic-stripe reader, swipe the card through the reader for every face-to-face transaction. If the terminal isn’t working or a card’s magnetic stripe cannot be read, key-enter the account information and make an imprint of the embossed information onto the sales receipt using a manual imprinter. Even if the transaction is authorized and the cardholder signs the receipt, if the receipt does not have an imprint of the embossed account number and expiration date, the transaction may be charged back to you for “no imprint” if the cardholder later denies participating in the transaction.
   
• Obtain cardholder signature. The cardholder’s signature on card-present transactions is required. Failure to obtain the cardholder’s signature could result in a chargeback for “no signature” if the cardholder denies authorizing or participating in the transaction. Always compare the signature on the sales slip and the signature on the back of the card. If the card does not carry any signature, ask the customer to show you a picture ID, and have him sign the card at the time of purchase.
   
• Make only one imprint of the card for each transaction. Making more than one imprint can lead to duplicate deposits and increase the chance of a chargeback. If you need to redo a sales receipt because of an error, write “VOID” across the incorrect sales receipt, inform the cardholder, and tear up the incorrect sales receipt in view of the customer.
   
• Ensure that transactions are entered into point-of-sale terminals only once—and deposited only once. Entering the same transaction into a terminal more than once, or depositing both the merchant copy and the bank copy of the sales receipt with your acquirer, or depositing the same transaction with more than one merchant bank can all result in “duplicate transaction” chargebacks.
   
• Ensure that incorrect sale receipts are voided and that transactions are processed only once.
   
• If your establishment has policies regarding merchandise returns, refunds, or service cancellation, disclose these policies to the cardholder at the time of the transaction. Your policy should be pre-printed on your sales receipts within ¼ inch of cardholder’s signature; if not, write or stamp your refund/return policy information on the sales receipt near the customer signature line before the customer signs (be sure the policy shows clearly on all copies of the sales receipt). Failure to disclose such policies at the time of the transaction will be to your disadvantage should the customer return the merchandise.
   
• Deposit sales receipts with your merchant bank as quickly as possible, preferably within one to five days of the transaction date—do not hold on to them. Failure to deposit in a timely manner can result in chargebacks for “late presentment.”
   
• Deposit credit receipts with your acquirer as quickly as possible, preferably the same day as the credit transaction is generated. Failure to process credits in a timely manner can result in chargebacks for "credit not issued."
   
• Keep customers informed on the status of their transactions.
   
• If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date.
   
• If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a customer dispute regarding the merchandise and a possible chargeback.
   
• Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you have shipped the related merchandise. If customers see a transaction on their monthly statement before they receive the merchandise, it could lead to a preventable chargeback.
   
• When refunding a customer, always credit the same card that was used for the corresponding sale.
   
• Respond to all sales draft requests.  Should you receive a request for copy of sales draft, respond immediately. Failure to send in copy will result in a chargeback with no representment rights.
   
• Change printer ribbon frequently- illegible sales drafts can also initiate chargebacks

Card-not present Transactions:

• Do not complete a transaction if the authorization request was declined. Do not repeat the authorization request after receiving a decline.
   
• If a customer requests cancellation of a recurring transaction which is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately or as specified by the customer. As a customer service, advise the customer in writing that the service, subscription, or membership has been cancelled and state the effective date of the cancellation. Failure to respond to customer cancellation requests almost always leads to chargebacks.
   
• If the merchandise or the service to be provided to the cardholder will be delayed, advise the cardholder in writing (e-mail for e-commerce merchants) of the delay and the new expected delivery or service date. Also, if the item is out of stock or no longer available, offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a possible chargeback.
   
• Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you are about to or have shipped the related merchandise. If customers see a transaction on their monthly statement before they receive the merchandise, it could lead to a preventable chargeback.
   
• When refunding a customer, always credit the same card that was used for the corresponding sale. Do not offer a check or other form of payment in place of a refund.
   
• Use the Address Verification tool (AVS) and require a perfect match on cardholder’s billing address. Partial AVS match will not stand in a “non authorization” chargeback scenario. If you need assistance in setting the AVS properly on your Gateway, contact your payment gateway provider or the Loss Prevention department of your credit card Processor for assistance.
   
• Make sure the billing and the shipping address are the same. If not, make sure you verify the shipping address. You can search through the Yellow-White pages, ask for a copy of a utility bill, or a copy of a Driver’s License to validate the shipping address. You can also ask the customer to call the Issuer and add the new address to the billing information
   
• Obtain and verify the Card Code (CVV2/CVC2). This is the 3-4 digits number on the back of your card (on the front for American Express). This information can be captured only if your shopping cart, and your gateway are set up for it. Please, contact your webmaster and/or Gateway provider for details.
   
• Cancellation/Return Policy needs to be acknowledged by cardholder. Policy needs to be acknowledged by the customer. For telephone or mail order merchants, policy must be acknowledged with a signature on the order form, contract, or invoice. For e-commerce merchants, policy can be incorporated in the online Terms and Conditions of the sale, and require the cardholder to click on an “I agree” button before completing the order.
   
• Generate an RMA number for submitted cancellations.
   
• Obtain signed proof of delivery. Tracking numbers without a signature are not considered valid proof of delivery.
   
• Verify the Internet Protocol (IP) address. Even though the IP verification is not a 100% guarantee, adding this feature will help you detect fraud. Your Gateway provider and/or other software vendor should be able to help you get started with this validation process. There is a variety of IP validation software that can be downloaded at no cost.

For more information, visit http://www.mastercardmerchant.com/securecode/index.html