A chargeback is when the customer disputes an unauthorized transaction on their credit card statement and asks for it to be reversed.
The merchant has 10 days from the date of the chargeback request to reply with evidence that they did in fact perform the service or product as requested by the customer.
If the merchant fails to do so, then the chargeback will be considered valid.
The Merchant Response
If the merchant responds to the chargeback, they must provide proof that the transaction was performed. This can include receipts, phone records, emails, etc.
They should also explain why they believe the transaction was authorized.
If the merchant provides sufficient proof, the chargeback will be canceled.
However, if the merchant cannot prove the transaction was performed, the chargeback will remain active until the dispute period expires (10 business days).
Chargebacks are typically handled by the bank issuing the credit card. In some cases, however, merchants may handle them themselves. If this occurs, they must follow the same guidelines as outlined above.
How Do Chargebacks Affect Your Business?
There are many reasons why you would want to avoid chargebacks. These include:
- Complaints about your store/website
- Loss of sales due to negative reviews
- Additional fees charged by banks
- Increased fraud risk
- Decreased trust among customers
In addition, there are several things you can do to reduce the chances of receiving a chargeback. Here are three tips:
- Make sure all transactions are authorized
- Provide clear instructions regarding how to make purchases
- Ensure that all information provided is accurate
A good way to ensure that all transactions are authorized is to use a third-party authorization system such as AuthorizeNet. This allows you to track every purchase made through your website.
You can even set up rules to automatically authorize certain types of payments.
Another tip is to clearly communicate with customers before making any charges.
For example, you could send out emails explaining what items are included in a package and how much shipping costs will be added. Customers appreciate knowing exactly what they are paying for.
Finally, never accept payment without first confirming that the order was completed. This ensures that the person providing the payment information is actually the one who placed the order.
What Happens When Chargeback Fails?
When a chargeback fails, the customer receives a refund. When this occurs, the merchant loses money. Therefore, it is important to understand how to prevent these situations. Here are two ways to avoid failing chargebacks:
- Use Authorize.net’s free trial version
- Accept only secure forms of payment
Authorize.net offers a free 30-day trial version which includes the following features:
Free Trial Version Includes:
- Unlimited Transactions
- Free Credit Card Verification
- Free Fraud Protection
- Real-Time Reporting & Billing
- Complete Customer Support
You can sign up at www.authorizenet.com/enroll.
Accepting Only Secure Forms Of Payment
Using secure methods of payment helps to minimize the chance of fraud. One common method of securing online transactions is using SSL encryption technology. To learn more about SSL technology, click here.
The next step is to verify the identity of the user. This means verifying that the email address used to place an order matches the email address on file with Authorize.net.
Once verified, you can proceed with processing the transaction.
How Do I Prevent My Merchant Account From Being Charged Back?
If you have been charged-back, then you need to take action immediately. The best thing to do is contact your bank or financial institution so that they can help resolve the issue.
Next, you should also contact your merchant account provider. They will be able to provide you with additional information about how to handle the situation.
Chargebacks happen because of human error. If you follow the steps outlined above, you should minimize the likelihood of being charged back.
In today’s world, most people use credit cards to pay for their purchases. However, many merchants still prefer cash or check payments.
In fact, some businesses don’t accept credit card payments at all. These merchants rely solely on checks or cash.
Merchants who choose to accept credit cards face several challenges.
First, they must find a company that provides them with a merchant account.
Second, they must determine whether the credit card companies that process their transactions offer them special rates.
Finally, they must make sure that they comply with all federal regulations.
A merchant account is a service provided by a third-party processor. It allows merchants to accept credit card payments from their customers.
There are three types of merchant accounts available:
- Prepaid – Merchants prepay a certain amount of funds into their account in advance. Their balance never goes below zero.
- Postpaid – Merchants receive a monthly statement showing their current balance and any remaining balance owed.
- Debit – Merchants receive a debit card that can be used to withdraw funds directly from their checking account.
Most major credit card companies allow merchants to set up a separate account just for accepting credit cards. This type of account has its own unique number.
For example, Visa requires merchants to register with the company by calling 1-800-VISA-PIN (1-800-847-3967).
When a customer uses his or her credit card to purchase goods or services, the credit card company sends the transaction through the clearinghouse network.
The clearinghouse network routes the transaction through the appropriate merchant account.
When a transaction passes through the clearinghouse, it is assigned a transaction ID. The transaction ID identifies the specific transaction. It consists of the following elements:
- A four-digit routing code
- An eight-digit authorization code
The routing code is a combination of digits that identify the merchant account. The authorization code is a string of numbers that represents the dollar value of the transaction.
For example, suppose that a customer places an order for $100 worth of merchandise. The merchant would enter the transaction as follows:
Routing Code: 4242
Authorization Code: 00011001
Once the transaction reaches the merchant account, the merchant receives a confirmation message. The confirmation message includes the transaction ID, the date/time the transaction was received, the name of the merchant account holder, and other information such as the total amount of the transaction.
To ensure that merchants do not abuse the system, the Federal Reserve Board regulates how much money merchants may keep in reserve.
In addition, the Federal Reserve Board sets rules regarding how long a merchant should hold onto a customer’s payment before returning it.
Finally, the Federal Reserve Board establishes guidelines for what constitutes fraud on the part of merchants.
These guidelines include things like:
- The merchant cannot refuse to honor a valid chargeback request.
- The merchant cannot ask for additional fees from the customer after he or she returns the payment.
- The merchant must return all unspent funds within 30 days.
If a merchant fails to comply with these regulations, he or she could face civil penalties and even lose his or her business license.
In conclusion, if a merchant fails to respond to a chargeback within the allotted time then it can have negative effects on the merchant’s business as they can garner a reputation for not handling their finances properly.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.