Effective Chargeback Management Series: Part 1

We’re excited to announce the launch of a new series that will provide valuable information about chargebacks and how business owners can best manage them to mitigate negative outcomes. In Part 1, we’ll be giving an overview of chargebacks and focusing on one chargeback reason code in particular.

What is a Chargeback?

A chargeback is a transaction that has been disputed by the cardholder. There are many reasons for chargebacks, but the most common reasons are returned merchandise, terminated services, disputes between the cardholder and merchant, errors, or fraud/friendly fraud. To respond to a chargeback, Merchants are required to provide proof and supported documentation that the disputed transaction is valid.

What Are the Negative Consequences of Chargebacks?

Not only do chargebacks cause financial losses in the short term—in the form of losing out on transactions and having to pay chargeback fees—they can also threaten the Merchant’s processing account as a whole by increasing their chargeback ratio and causing them to be on a higher risk alert. A Merchant with a high chargeback ratio can end up being categorized as a high-risk Merchant, or even lose their account entirely.

How Can Merchants be Proactive in Mitigating Damage from Chargebacks?

There are several key steps that Merchants can take to increase their chances of winning a dispute. By maintaining proper business practices and looking out for suspicious transactions or customers, Merchants can avoid many chargebacks.

In Part 1 of this series, we will focus on some ways that Merchants can best respond to chargebacks that fall under the category of  “product or service not received or merchandise/service not provided.”

Best Practices for Responding to Chargebacks With Reason Code “Product or Service Not Received or Merchandise/Service Not Provided”

1. Merchants should be sure to maintain adequate materials, such as those listed below, for all transactions so that they can provide them if a chargeback occurs. Keep in mind that cardholders have up to 18 months to file a chargeback on a transaction.
   • Important Materials to Store for Card-Present Transactions:
     • Signed terms and conditions, signed refund policy, signed cancellation policy (by disclosing policies early on, merchants can reduce the odds that the customer will rush to file a dispute)
     • For deposit transactions, the merchant should have the customer sign a contract with all terms and conditions, as well as the cancellation policy details
     • In the event of merchandise delivery or pick up, the merchant should also make sure to obtain a signed proof of delivery or pickup
   • Important Materials to Store for Card-Not-Present Transactions:
     • Completed and signed credit card authorization form that includes all applicable terms and conditions
     • Detailed invoice
     • Signed proof of delivery
2. For card-not-present transactions, it’s best to ship to the same address as the billing address if possible. Additionally, it’s essential to utilize Address Verification System (AVS) to ensure that the billing address provided by the customer matches the billing address on file with their bank. The AVS match should always be listed on the transaction receipt.
3. Merchants can easily reach out to the customer’s issuing bank to verify the cardholder’s full name and billing address before processing the transaction.
4. Merchants should always be sure to respond to any chargebacks as quickly and as thoroughly as possible. They should carefully address all of the cardholder’s/issuer’s concerns that are listed on the dispute notification. 

Fidelity’s Chargeback Alerts Program is here to help merchants respond to chargebacks fast! Click here to learn more.

Stay tuned for our next installment to learn more about the proper chargeback response for other reason codes.