'Chargeback' is the term used for when a customer disputes a transaction and the merchant must refund the value of the goods/services. This is usually a result of Fraud or the denial of ordering and receiving of goods. This is a problem as proving that an item has been ordered and received is up to the vendor. Chargebacks are more frequent where the card or card holder are not present at the point of sale (for example, online purchases).
Chargebacks generally happen as follows:
Cardholder Disputes transaction
Issuer advises merchant bank
Processing of the dispute
There are two possible outcomes:
The Merchant is able to provide documentation proving the transaction and the case is closed with no cost to the merchant.
If the request is ignored or not resolved, the amount in the dispute is charged back to the merchants nominated bank account and will appear as a debit.
It is important for merchants to respond immediately to voucher requests from their merchant bank. Ignoring these requests may result in a chargeback on your business account.
It is important to note that the chargeback process may be different for your bank. This information is provided as a guide only.
Unfortunately, chargebacks are a part of credit card processing and cannot be avoided completely but you can ensure your card acceptance procedures assist to minimise the risks.
MasterCard and Visa have introduced a fraud deterrent tool called “3D Secure” (the MasterCard brand is called MasterCard SecureCode and the Visa brand is called Verified by Visa). This tool will further assist in protecting your business against counterfeit card fraud.
Both the MasterCard and Visa fraud deterrent tool requires the merchant to be registered and tested prior to implementation. As part of the verification process, the Cardholder must enter a password when making purchases over the internet, similar to entering a PIN at an EFTPOS terminal.
If you are a merchant selling physical goods:
If you are providing services (such as support, development, design, labour etc) or selling a service-product online (such as accounting application, an information product etc):