What is a Credit Card Chargeback and How Can I Avoid Them?

Return Item Chargeback

There are many reasons a consumer may file a return item chargeback. There are over 50 chargeback reason codes between all the major card brands, and while the list is too long to cover them all here, we wanted to address the most commonly abused reasons for a credit card chargeback dispute and how to fight chargebacks.

1. Fraud

How to avoid this in the future: When it comes to credit card chargeback fraud there are many tools available to merchants to alleviate fraud in the online payments world.

• iSpy Fraud Tools: iSpyFraud is a rules-based fraud prevention tool that merchants can use to screen suspicious transaction activity, helping merchants to stay one step ahead of credit card chargeback fraud.
• Verified-by Visa/MC Secure Code: Both Visa and MasterCard have programs that allow you to add an additional layer of security to your sales, and potentially avoid a return item credit card chargeback fee.
• 3D Secure: 3D Secure was created by Visa and MasterCard to add an additional layer of security for Card Not Present (CNP) and high risk merchants.
• Gateway Tools: Utilize the standard gateway tools at your disposal to avoid an unnecessary return item chargeback. Be sure you turn on and make use of AVS (Address Verification Services) and CVV (Card Verification Value).

2. Transaction Not Recognized

Processes to implement preventing this: In high risk payment processing, your payment descriptor is the merchant name, as well as other identifying details that appear on the customer's statement when they make a purchase from you. If the customer doesn't recognize the name that appears on their statement, it is unlikely they will know what the charge was for. To avoid a chargeback dispute, the solution is to be sure your descriptor reflects what the consumer will recognize.

3. Incorrect Transaction Amount / Fraudulent Multiple Transactions

What to look for: You may run into a system error that can lead to the customer's credit card being charged twice, which risks the potential of a return item chargeback fee. Occasionally, a customer accidentally pressed the "Check Out" button twice, leading to a duplicate charge. If you happen to see a duplicate order, assume that it was a mistake and contact the customer to confirm. If there is a manual process, the person processing the credit card might make an error. Avoid doing manual processing of orders if possible, and be sure to state the chargeback time limit somewhere within your return policy guidelines.

4. Not as Described or Defective Merchandise

Here is what you should do: You can't make everyone happy, and that goes double for consumers. Make sure you have a responsive customer service team with short hold times. Only one thing infuriates a consumer more than long wait times; speaking with a customer service rep for a company with too strict of a return policy. You need guidelines for how to fight chargebacks, and make sure your return policy is clearly located on your website in a way that is fair for both parties involved.

5. Services Not Provided or Merchandise Not Received

The resolution: Start with clear expectations and a visible shipping policy on your website and keep your customers informed by emailing order status updates. Sometimes there are circumstances out of your control, especially for those with a mobile merchant account, that can cause a delay in shipping. Issues in this area can range from unexpected weather causing shipping delays, to an unexpected turn in sales causing you to run out of product – regardless, for a return item chargeback to be avoided, advise the customer of the delay and give them the option to cancel.

6. Cancelled Recurring Transaction

The solution: If a customer requests cancellation of a recurring transaction that is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately – or as specified by the customer. If you don't want to fall subject to a credit card chargeback, advise the customer in writing that the service, subscription, or membership has been cancelled and be sure to state the effective date of cancellation. Failure to respond to customer cancellation requests almost always leads to a chargeback.

7. Credit Not Processed

How to dodge this problem: Always make refunds in a timely manner and do so to the same credit or debit card the consumer paid with. Failure of timely refunds can result in a return item chargeback or a basic credit card chargeback. Make sure you communicate to your customer how long it will take before they see the refund.

This information may seem basic to some people, but when it comes to the integrity of how your business is conducted and your consumer retention, it's always best to cross your T's and dot your I's. Knowledge is power, which is why knowing how to fight chargebacks in regards to the chargeback time limit and how to avoid this type of situation all together can be a powerful resource. Be sure that your company chooses a secure high risk merchant account to deflect many of these stressors and for all your payment processing needs.

If you're unsure whether or not your company has been categorized as a high risk merchant, be sure to read more here for a complete list of businesses in this arena and to answer the question: What is a High Risk Merchant Account?