by Grace Barone
Credit card technology has advanced just like everything else. The days of swiping a magnetic strip are almost obsolete. We now have EMV chips, contactless payments, where all you need to do is tap your card on the machine, you can even pay with your phone or smart watch now. With all the new ways to pay, the question of security is at the forefront. When I say security, I mean chargebacks. Just the mention of the word makes businesses and payment processors alike gulp with horror. What does it mean when you find out that you’ve been hit with a chargeback fee? What steps can you take to try to prevent chargebacks, and how can you avoid them?
Chargebacks, What are They?
A chargeback is when a consumer has funds returned from a transaction at a business, forcibly taken from the issuing bank of their debit or credit card. In other words, it’s a forced reversal of an already cleared charge that goes over the head of the business involved due to a specific reason or fraud. The chargeback was created as a way to protect consumers from fraud as well as low-quality products and services that did not match what was initially sold.
Why Do Chargebacks Occur?
Chargebacks are obviously something to avoid. You lose the sale, and usually the goods and services involved, and to add insult to injury, incur a chargeback fee, ranging from around $15 to $100. There are many specific chargeback codes (each based on the card issuer), but the following are some of the most common reasons behind chargebacks:
- The card was fraudulent or stolen
- The cardholder disputes the quality of the merchandise or service (not as it was represented)
- The cardholder disputes that they received the merchandise or service
- The amount was incorrect or they were billed incorrectly
- Proper authorization was not obtained by the business
- The cardholder didn’t recognize the charge on their statement
- The business did not fulfill a retrieval or copy request from the card issuer
Fighting Chargebacks in the Past
In the past, before chip readers were a thing. People would swipe the magnetic strip, then a signature would be required as an added layer of protection against a chargeback. Having a signed receipt was major when protecting your business from chargebacks. Having a signed receipt serves as a written confirmation of the consent to the transaction. The signature enables the merchant to verify that the individual presenting the card actually belongs to the cardholder. The signature also acts as proof that the customer has accepted the terms and conditions of the transaction, including the price, the date, and the name of the merchant. By doing this, the business is protected and can dispute a chargeback.
It used to be incredibly important for merchants to keep these signed receipts if there was ever a chargeback. It also served as protection for "retrieval requests". A retrieval request is when someone is not paying their credit card. The bank audits the person and can go and ask merchants for these signed receipts. If the merchant does not have a record of the transactions, the bank would take the funds back from the merchant to pay off the credit card debt.
Signature Requirements Today
Visa and Mastercard no longer require a signature for transactions. The fact that signatures are not a very secure method of authentication is one of the causes. Because signatures are so easily faked, businesses frequently do not check the signature before processing a credit card transaction. Signature requirements have been found to be a not so great strategy to prevent chargebacks.
Another argument is that, particularly in crowded retail settings, requiring signatures might prolong the checkout procedure. There are now more secure options to validate transactions without the need for signatures. This is thanks to the growth of chip cards and contactless payments.
With all of the security advancements that have been made regarding credit cards. Its much harder for people to buy something, then go home and dispute the charge with the bank. This does not mean chargebacks are no longer an issue for small businesses. Now, online shopping is incredibly popular. This means the number of "card-not-present" transactions have increased significantly and are where the majority of chargebacks come from.
The whole purpose of all these security measures is to have proof that a card is present for a transaction and the person paying for it is accepting the fact they are being charged. People can now buy something online and dispute the charge much easier, since there is less proof of purchase. Online merchants can prevent chargebacks by confirming the customers address, the security code and the zip code is the same as what the cardholders bank has on file. They can also require that the orders have to be shipped to the billing address or the charge gets declined.
5 Ways to Prevent Chargebacks
Unfortunately for merchants, chargebacks are still an issue. No matter what security features they come out with or what new requirements are put in place, people will still try and dispute charges. There are steps merchants can take to further prevent chargebacks and avoid the hassle that comes along with them.
1. Protect your business during the sale by following correct protocol with every transaction.
There are many small mistakes that can happen when running a transaction which can result in big problems. One common issue usually involves processing the transaction incorrectly. To protect yourself don’t key the card into the machine. If the card won’t read, ask for another method of payment. Also, if the card is declined, do not try again; ask for another form of payment.
You will also need evidence that you received an authorization approval which will show up on your copy of the receipt. Make sure the receipt is formatted correctly, with return policies, business name, and the transaction information all clearly legible. Finally, get the cardholder’s signature and make sure it matches the one on the back of the card. If no signature is present or the signatures do not match, ask for a form of ID or another form of payment, as you will not be protected in the case of fraud or a chargeback otherwise.
Finally, make sure the transaction is only run once through your point of sale and your terminal. If there is a mistake, ensure that it is clearly refunded and voided with a label on the receipt. Keep records of everything.
2. Be descriptive.
This tip can be applied in multiple chargeback situations. Many times, a consumer will simply not recognize or forget about a charge they actually did make. If the name on their statement isn’t the same or very similar as to what is on your receipt or on the front of your business, a customer may be confused and contest a chargeback. Make sure that the payment descriptor (the name that shows up on their statement) is easy to understand. In online businesses, it’s smart to actually list what the charge will show up as (PayPal does this!) before the consumer gets concerned or confused about the transaction.
Another chance to be descriptive is when describing goods and services. If someone doesn’t feel that the product or service matches the description, they are much more likely to initiate a chargeback.
3. Follow-up with excellent and timely customer service.
Customers who feel dissatisfied with their product or service are likely to come to you first to resolve the issue. If you find out that a customer is unhappy with the purchase, try your best to resolve it yourself. That way, you can avoid the chargeback cycle and fees altogether.
If someone requests to cancel or get a refund on your goods or services and they are valid within your policies, make sure that you issue the credit in a timely fashion. Waiting to process the return or issue the credit can also lead to a chargeback.
4. Respond to chargebacks and retrieval requests promptly and thoroughly.
When you receive a chargeback notification or retrieval/copy request, you only have a limited window in which you can respond and defend your business. Just as important, though, is providing complete, “compelling” information which supports that the consumer actually verified the purchase or that the charge was made correctly. This means keeping records of all interactions and communication. If you fax receipts to the issuer, make sure you have a fax record and that the copy of the physical receipt from the transaction in question is legible. Provide everything that is asked for or as much as you can. Another good idea is to take advantage of Wells Fargo’s Resolve Chargeback Tool. They do a great job of listing the chargeback reason codes as well as actions to take for each code from the card issuers.
5. Fight back, but be smart.
Chargebacks can cause problems beyond losing the merchandise and funds and incurring the $15-$100 chargeback fee. Businesses with a large number of chargebacks are flagged as risky or less desirable and it could affect your ability to take credit cards or your processing rates. Therefore, if you believe you have a chance at disputing the chargeback and winning the case, it’s probably worth putting in the time and effort to respond (promptly, of course).
However, there are some chargebacks that are essentially unavoidable, in that case, it’s best to practice the best customer service you can and initiate damage control. However, if you take the preventative measures outlined above, you should be less likely to encounter chargebacks and better able to represent yourself if you do. If you’re looking to find out more about chargebacks, check out VISA’s awesome guide on Chargeback Management. Make sure you're learning everything you can. The more you know, the easier it is to prevent chargebacks
POS Systems that Aid in Protection Against Chargebacks
If you're a merchant and all of this is information is overwhelming don't worry! Make sure you're taking the steps above while conducting business and keeping accurate records of transactions to prevent chargebacks. If you're taking card present transactions and still requiring a signed receipt get in contact with us by filling out the form below. VMS offers a variety of POS systems that will streamline your checkout process by keeping accurate transaction data. No more saving signed receipts!
Visit us at getvms.com or at (888)-902-6227 to see what other services we offer to help your small business.