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Reduce Chargebacks

Help / Assistance in reducing Chargeback Levels

NOTE: The granting of an Authorisation by the Card Schemes is not an assurance of the transaction's validity and the transaction may be subject to chargeback at a later date. Authorisation of a transaction will only check the availability of funds at the time of the transaction and that the card has not been reported lost or stolen. Any information and/or advice concerning transactions which may potentially be suspect is supplied in good faith to Merchants in order to support them in deciding whether they wish to process a transaction or raise further queries, but we are unable to guarantee the accuracy or completeness of the information. We cannot accept responsibility for your use of such information and you shall indemnify us against any liabilities arising from you deciding to accept or decline a transaction.

When a transaction is disputed, the card Issuer and the Acquiring Bank/Processor operate clearly defined and well-established procedures to resolve the dispute. These procedures are designed to establish if the Merchant should receive (or retain) the disputed payment or if the funds should be returned to the cardholder's account. The process of returning the funds to the cardholder is known as a chargeback.

The chargeback system was established by the card associations as a means to resolve conflicts between cardholders and Merchants. The chargeback rules are governed by the Card Schemes, but they are established pursuant to consumer protection laws.

In certain circumstances a cardholder may wish to dispute a transaction. This can happen for a number of reasons including:

  • Fraudulent use of a credit card
  • Dissatisfaction with service or merchandise
  • Duplicate charges
  • Invalid card number
  • Card misuse
  • Genuine processing errors
  • A cardholder may have had their card details stolen and used in a fraudulent purchase (please see "Anti-Fraud Measures" for further information on how you can reduce the likelihood of this type of chargeback). In such circumstances the reason for the chargeback could be one of the following:
    • The cardholder states that they did not authorise or participate in the transaction
    • Invalid card/ Non matching/ Fictitious account number/Unassigned cardholder Account Number/ Incorrect card member Account Number
    • Missing/invalid signature (after a Retrieval has been responded to by the Merchant)
    • Secondary identification not recorded/ does not reflect the cardholder (after a Retrieval has been responded to by the Merchant)
    • Warning bulletin (card reported Lost/Stolen after authorisation)
    • Incorrect cardholder Name (after a Retrieval has been responded to by the Merchant)
    • Counterfeit transaction
    • Note: This is not an exhaustive list
  • Product Quality
  • Customer Service Problems
  • Inadequate Refund Policy
  • A cardholder may have purchased a Product/Service and:
    • It was delivered in poor condition
    • It did not work
    • The cardholder is in a Legal Dispute with the Merchant
    • It broke down soon after purchase
    • It was not delivered
    • They were charged incorrectly for it
    • They were promised a refund and did not receive one
    • They were charged more than once
    • The transaction was an advance booking and the cardholder did not arrive
    • They were charged in the wrong currency (not the currency on their receipt)
    • There were errors in the addition of the total amount billed to them
    • The cardholder has returned the goods to the Merchant
    • A Retrieval Request/RFI has not been responded to or the information provided is insufficient to justify the debit to the cardholder
    • It was part of a recurring billing authority that is now cancelled
    • The cardholder has already/since paid by other means
    • They paid a deposit but have since cancelled the order
    • They were promised a refund but instead were charged again (credit posted as a Sale)
    • The total amount of the sale was split into two or more parts to achieve full authorisation (split sale)
    • The product was not as described in the sales literature
  • The documentation you have supplied in response to a Retrieval request/ FI is illegible. The onus is on you to provide legible copies of the required documentation, within the timescales stipulated.
  • You have not supplied sufficient proof that the goods were despatched. It is important that you provide as much information as possible when you receive a chargeback/ RFI and that all documentation is legible.
  • The card had expired
  • There was a Miss-post (the wrong card was debited)
  • The card was accepted before it was valid
  • The card number is incorrect and cannot be applied to an existing account

This is not an exhaustive list chargebacks can only be avoided if you have provided proof that the genuine cardholder received all the goods or services ordered, in perfect condition. This will include proof of delivery signed by the cardholder.

Either a cardholder or a cardholder's Bank may initiate a chargeback. The time period during which a transaction may be charged back is limited by Card Scheme regulations.

Depending upon the nature of the dispute, the consumer has 120-180 days from the initial date of the transaction to challenge that transaction. Once the chargeback is initiated, the Merchant Bank has only 30 days to respond.

Once the Merchant receives notification of the chargeback, they may either accept it or fight it. If the Merchant decides to fight it, they must promptly provide the Bank/Processor with the information requested from them. With this information, the Bank/Processor and the card issuing Bank attempt to resolve the dispute. If an agreement cannot be reached, either of these parties may appeal to the Card Scheme for a ruling. As there is a substantial fee for this mediation, the Card Scheme encourage resolution of disputes without intervention. Banks/Processors strive to limit Merchant losses through education.

There are two types of transaction associated with the credit card chargeback system - retrieval requests and chargebacks.

  • A retrieval request comes from a cardholder or their Bank, requesting to see a copy of a sales draft or a mail-order form. This can be done for a variety of reasons ranging from verifying a sale to tax purposes, and sometimes for fraud reasons. Failure to supply a draft by the date requested in the retrieval letter could result in a chargeback.
  • A chargeback is the reversal of a sales transaction previously processed by your business. The amount of the previous transaction is deducted from your account. Chargebacks are usually initiated by the customer (the cardholder) but can also be initiated by the cardholder's Bank.

The chargeback process

The following indicates the process followed:

  • 1. The cardholder queries the transaction.
  • 2. The card issuer requests information about the cardholder's transaction from the Acquiring Bank (this is known as a Retrieval Request). Card Issuers do not state the reason for the request and they are not required to confirm whether the information provided is sufficient for the cardholder. A chargeback may or may not subsequently be raised. Note: If the cardholder denies involvement with the transaction the card Issuer may not issue a Retrieval Request but may raise a Notification of chargeback immediately, without prior notice.
  • 3. The card issuer approaches the Acquiring Bank for a copy of the transaction receipt. The card issuer provides the Acquiring Bank with limited information relating to the transaction. The cardholder's name is not quoted. The Acquiring Bank, therefore, receives only the dates, card number and amount. The Acquiring Bank's role is to forward the retrievals to the card issuer and to act upon the Merchant's responses in a timely manner. The Acquiring Bank will represent your interests in trying to avoid subsequent chargebacks, but they need your support (as detailed below) to undertake this role.
  • 4. The Acquiring Bank forwards the Retrieval Request to the Merchant. If the Merchant has already credited the transaction, the Acquiring Bank will notify the card issuer of this and request that the Retrieval Request is retracted.
  • 5. The Merchant is required as a response to the Retrieval Request to send all the necessary information relating to the transaction, back to the Acquiring Bank. If the card issuer does not receive a copy of the transaction receipt within the required timescales, it has the right to chargeback the transaction for 'non-receipt' of documentation.
  • 6. You provide the Acquiring Bank with the following information:
    • a. A faxed or scanned document (referred to as a "sub draft") showing the cardholder's information (name, address, card number, expiry date, CVV response, phone number, email address, IP number, etc) AND a description of the goods or services provided (for this transaction.)
    • b. Any of these additional, optional items, can be provided to increase your chances of winning a Re-presentment case:
      • i. A copy of a paper sales draft or fax showing the cardholder's signature.
      • ii. A legible photocopy of the front and back of the customer's Credit card.
      • iii. A legible photocopy of the cardholder's passport or driver's license.
      • iv. Any additional proof of the order authorisation or Merchant fulfilment.
  • 7. The Acquiring Bank forwards the transaction information on to the card Issuer. The card Issuer considers the information in liaison with the cardholder and determines if the information was returned in the correct time frame and whether it satisfies the cardholder's query. If the transaction is no longer disputed, the process stops here.
  • 8. If the transaction information does not satisfy the cardholder's query in accordance with the Rules, or the supporting documentation fails to arrive in the specified time frame, the card issuer will raise a chargeback on behalf of the cardholder and send the details of the chargeback to the Acquiring Bank who will pass it on to the Merchant. Note: At no point can the Acquiring Bank stop a chargeback from occurring once the card Issuer has raised it. Nevertheless, you may regain the chargeback funds if you are successful in disputing a chargeback using a "Good faith Request" to the card issuer. Throughout the process, relationships are clearly defined. The cardholder liaises with the card issuer. The card issuer liaises with the Acquiring Bank. The Acquiring Bank liaises with the Merchant.

Any of these additional, optional items, can be provided to increase your chances of winning a re-presentment case:

  • A copy of a paper sales draft or fax showing the cardholder's signature.
  • A legible photocopy of the front and back of the customer's credit card.
  • A legible photocopy of the cardholder's passport or driver's license.
  • Any additional proof of the order authorisation or Merchant fulfilment.

How do I know if my re-presentment case was won or lost?

Once a decision has been made by the Issuing Bank/Processor one of the following two will occur:

  • 1. A chargeback reversal will be posted as a credit to your account indicating that your case was accepted (won), or;
  • 2. A lost Re-presentment will show as an "information only" record indicating that your case was rejected. The Bank's decision could take up to 180 days, but you will typically receive an answer within 10 Banking days.

What is a second/final chargeback?

Occasionally an Issuing Bank/Processor will Represent a chargeback that has been previously reversed. This process is supported by the Card Scheme Regulations.

What information is required to dispute a second chargeback?

Reversing a second chargeback is rare. A case may be made in Good Faith with substantial dispute collateral. Once the chargeback process has been completed, or the Card Scheme timescales have expired, there is no further recourse to the card issuer. However, there may be reasons, outside the Card Scheme Rules and Regulations, where you would wish the card issuer reconsiders the circumstances surrounding a chargeback. This can be achieved by a Good Faith/Collection Assistance attempt; a letter to the card issuer, with supporting documentation, requesting that it reconsider the chargeback decision. The card issuer is not obliged to view the case, make payment or even reply to a Good Faith/Collection Assistance. This option is considered a 'last resort' and can only be considered if you can provide evidence that the chargeback is invalid or that you have corrected the original defect.

How can I avoid chargebacks/ reduce the number of chargebacks I receive?

It is not possible for you to avoid chargebacks completely; however, we at Perpetual Payments Merchant Services do offer a personalised chargeback Reduction Consultancy service that can enable you to significantly reduce your levels of chargebacks.

Remember, if you are receiving a large percentage of disputed transactions you are required to take corrective actions to prevent disputes arising, or you may face Card Scheme Fee Assessments from the Card Schemes.

For further information on our chargeback Reduction Consultancy service please contact us.

To apply for the Perpetual Payments Merchant Account today please click the button below.