Back to BlogCredit Card Chargebacks: Merchants’ Rights
Chargebacks were created to protect customers’ rights, but that doesn’t mean their primary goal is to harm merchants. As a merchant, you also have chargeback rights.
Card networks, such as Visa and Mastercard, provide rules and regulations that protect you from fraudulent activity, including friendly fraud and chargeback fraud. You can also protect your business from unwarranted returns and dishonest customers.
Merchants’ Chargeback Rights — What You Need to Know
Even though the main goal of chargebacks is to protect customers, this protection isn’t unconditional. It means that customers must follow specific procedures. In other words, they must attempt to dispute the transaction with the merchant before filing a chargeback.
When the issuer can’t resolve the problem, they can ask the customer to prove their attempts to settle with the merchant.
However, there are numerous factors to consider to improve the security of your business. Continue reading to learn what matters most from a business standpoint regarding merchant chargeback rights.
Reason Codes
Reason codes are attached to chargeback notifications and provide insights into why the chargeback was issued. Customers must give a reason for filing a chargeback; with this information, you’ll know what you can do and what kind of evidence you need to provide to the issuing bank. Reason codes also help you decide whether investing in a dispute will be worthwhile.
Note that several reason codes require cardholders to contact the merchant before filing a chargeback to resolve the issue.
Late Delivery Returns
Suppose an item is delivered after the agreed delivery date. In that case, the customer must return the merchandise before filing a chargeback — a method like this shields the retailer against losses brought on by mistakes made by the delivery service.
Purchase Price Only
Customers are limited in their chargeback amounts. When a cardholder issues a chargeback, it can be done for the total amount of the transaction or a partial charge. The chargeback can never exceed the original transaction amount. Whether it’s a one-time chargeback or partial chargebacks added together, the chargeback totals can’t exceed the original transaction amount.
However, there might be an exception if the transaction was made in foreign currency and the exchange rate has changed since the purchase was made.
15-Day Waiting Period on Returns
Before approving a chargeback, issuers need to wait 15 calendar days, beginning from the moment the customer returns an item. The only exception is when the 15-days period exceeds the chargeback filing deadline.
This 15-day window offers merchants more time to file a refund and avoid the chargeback issue.
It’s also important to note that merchants can request product returns when customers initiate a refund or a credit card chargeback.
No Cashback Transactions
Another thing you should be aware of as a merchant is that chargebacks can’t be filed for a cashback amount received from a debit card transaction.
The Right of Representment Process
Contesting a chargeback is one of the most essential rights of a merchant. You have the right to fight chargebacks and you need to respond to them formally. If you work with a reliable payment processor, they will provide you with tools to get you through the dispute process smoothly.
The first step you’ll typically need to take is completing a form in your merchant dashboard and submitting it by a specific deadline.
It’s important to gather as much evidence as possible. Ensure that you collect specific information and keep transaction records — everything that could help you win the dispute.
Remember that disputing a chargeback may require a high investment of resources, which may not be profitable. So, it’s a good idea to determine a minimum transaction value that would be worthwhile to dispute.
Chargeback Arbitration
When the issuer’s decision is made in favor of the customer, the bank files a pre-arbitration chargeback to the merchant. You can then decide whether to accept the decision or appeal to the card network to review the case.
Before deciding to appeal a decision, do a cost-benefit analysis. It might be more costly to appeal than to refund the transaction. Think twice, especially when requesting pre-arbitration (reintroducing the chargeback). It isn’t a good idea if the process cost exceeds the purchase value. The pre-arbitration process should be reserved for high-value transactions.
Protect Your Profits
As a merchant, you have rights when it comes to chargebacks, so make sure you understand them all. How does it benefit you? First and foremost, merchant chargeback rights can help you prevent severe losses for your business.
Another way to avoid losses is to include a top-notch fraud prevention strategy in your everyday activities. Make sure the payment processor you work with provides anti-fraud tools with machine learning, AI-based solutions, and an efficient chargeback disputing mechanism.
Finally, maintaining high-quality customer service and a robust refund policy is also helpful, so always try to talk to your customers first to avoid fighting chargebacks later. If your discussion isn’t successful, weigh the pros and cons before taking additional steps.