North American Bancard Blog

Chargebacks: Facts and Fiction

Posted by Nancy Bakanowicz on

EMV chip card readerBy now, you’ve heard the term “chargeback,” but just what is a chargeback and what does it mean when it happens to you? A chargeback is defined as occurring when a customer contacts her credit card issuer to dispute the charge made on her card. While chargebacks are intended to protect consumers from unauthorized charges, sometimes that is not the case, and the merchant is left holding the bag. If the card issuer sides with the customer, your merchant account is debited for the charge that already cleared, and in some cases, the processor may slap you with a chargeback fee, increasing the debit amount even more.

Below are facts and fiction when it comes to chargebacks, along with some tips you can implement to help avoid them happening to you and your business:

FACT:Chargebacks are not refunds demanded by issuing banks for fraudulent transactions. In fact, sometimes chargebacks don’t involve refunds or fraud at all. There are many reasons for a chargeback, including information requests, processing errors, cancelled or returned orders, order not received and quality issues. If you are notified of a chargeback, there is no need to panic, as it may just be a request for more information. Get all of the specifics of the chargeback so you will know what steps to take next.

FICTION:There is no way to minimize chargebacks. There actually are several ways to reduce the chances of and the amount of chargebacks. Your payment processor can help you out with this by minimizing certain risks and providing detailed information on chargeback disputes when they occur. You can also help yourself by making sure you have the latest card reading equipment, and that you and your employees are informed on the latest policies and procedures for accepting payment cards. You should also ensure you and your employees know how to properly complete a payment card transaction – by verifying signatures, looking for suspicious transactions and acquiring signatures on sales orders and contracts.

FACT:There are certain industries that are more prone to chargebacks. They include petroleum/gas stations, restaurants and bars, quick service and vending machines. In addition to high risk industries, there are certain areas of the country that have also been designated high risk, including the states of Texas, New York, California, Florida, Illinois and New Jersey; large cities and densely populated areas; college towns; and border areas with Canada and Mexico. Merchants in these industries and geographical areas need to be extra vigilant in ensuring their equipment is up to date and their employees are well trained in the proper procedures.

FICTION:You can’t spot potential fraud, especially with card-not-present (CNP) transactions. Actually, there are many ways you can identify potential fraud. First, you need to make sure you are doing things correctly on your end, as this will help minimize the potential for fraud, which helps limit your liability if there is a chargeback. For CNP fraud, some potential fraudulent activities to look out for include:

  • A new customer ordering a big-ticket item or placing a large order.
  • Several orders in a short period of time.
  • Different billing and delivery addresses (although this could be someone ordering a gift to be delivered to a friend or relative).
  • Multiple order attempts with similar card details – could be someone guessing at the required information.
  • Multiple orders with different cards delivered to the same address.
  • International shipping where Address Verification Service is not available.
  • Address is non-existent or undeliverable.

Chargebacks can be scary, but the more you educate yourself and your employees on proper transaction policies and procedures, the better you will be able to reduce the chances of a chargeback, and defend yourself should a chargeback happen to you.