A chargeback is a process in which a customer disputes a credit or debit card transaction and requests a refund from their card issuer. The customer may initiate a chargeback if they believe that a transaction was unauthorized, if they did not receive the goods or services they paid for, or if the transaction was processed for an incorrect amount.
When a customer initiates a chargeback, their card issuer will typically conduct an investigation to determine whether the transaction was valid. If the card issuer determines that the transaction was not valid, they will issue a refund to the customer and chargeback the amount of the transaction to the merchant.
As a merchant, you can fight a chargeback by providing evidence that the transaction was valid and that the goods or services were delivered as agreed. This can include proof of delivery, receipts, and other documentation that shows that the customer received the goods or services they paid for. You also have time limits, usually a few weeks, to submit evidence to the issuer.
To win a chargeback, the evidence provided by merchant should be conclusive, and should demonstrate that the transaction was made by the cardholder, or that the cardholder had received the goods or services they paid for.
Chargebacks can be bad for your merchant account, as they can result in lost revenue and additional fees. Moreover, excessive chargebacks can also lead to an increased risk of fraud and may cause the merchant account to be terminated. Moreover, if you are found to be at fault of chargeback, it may lead to losing your merchant account and also damaging your reputation.
However, by keeping accurate records and providing good customer service, it can help to minimize the number of chargebacks you receive. Also, some MSPs or payment processors have built-in fraud prevention tools that can help you detect and prevent chargebacks before they happen.
There are several strategies that merchants can use to prevent chargebacks:
- Obtain authorizations: Before processing a transaction, ensure that the customer’s credit or debit card is valid by obtaining an authorization from the card issuer. This will help to ensure that the card is not stolen or being used fraudulently.
- Use AVS and CVV checks: Address Verification Service (AVS) and Card Verification Value (CVV) are security measures that can help to prevent chargebacks. AVS compares the billing address provided by the customer with the address on file with the card issuer, and CVV checks the three-digit code on the back of the card.
- Provide clear and detailed receipts: Make sure that your receipts are clear, detailed and legible, including the merchant name, date, amount, and a description of the goods or services sold. This will help to prevent confusion and disputes over transactions.
- Provide good customer service: Make sure that your customer service is responsive, helpful and can handle any customer complaints or issues. By providing good customer service, you can help to resolve disputes before they escalate to chargebacks.
- Implement fraud detection and prevention tools: Use tools like machine learning and analytics to identify patterns of fraud, such as suspicious IP addresses or large transactions. This can help you detect and prevent chargebacks before they happen.
- Monitor chargebacks regularly: Regularly monitor your chargebacks by checking your account activity and transaction history. This will help you to identify patterns and trends, and take action to prevent further chargebacks.
- Have a clear refund policy: Make sure that your refund policy is clearly stated on your website and at the point of sale. This will help customers understand the process for returning goods or services, and may help to prevent chargebacks.
- Use third-party chargeback prevention service : Some merchant service providers or third-party providers can help you to detect and prevent chargebacks by analyzing your transactions, identifying patterns of fraud and providing support during chargeback disputes.
It’s worth noting that no single strategy will prevent all chargebacks, and different techniques may be more effective in different situations. The best approach is often a combination of different strategies, and regularly monitoring and adjusting your chargeback prevention efforts as needed.