Chargebacks

What is a Chargeback?

'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).

Chargeback Process

Chargebacks generally happen as follows:

Step 1 Cardholder Disputes transaction
  • This is usually a transaction that the cardholder does not recognise on their statement.
  • The duration of the chargeback can take as long as 12 months to finalise
Step 2 Issuer advises merchant bank
  • Merchant Bank receives dispute advice on behalf of merchant from the issuing bank after it has been
  • determined a chargeback reason
Step 3 Processing of the dispute
  • Merchant is to provide satisfactory evidence regarding the transaction
  • The merchant has between 10 - 14 days to respond to this request
  • Action required will be advised in the request in line with your merchant agreement

There are two possible outcomes:

1. Merchant Successful

The Merchant is able to provide documentation proving the transaction and the case is closed with no cost to the merchant.

2. Merchant Unsuccessful

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.

What are the most common Chargeback reasons?

  • Unauthorised Mail Order / Telephone Order (MOTO) transactions
  • Requested transaction copy or supporting documentation not received
  • Duplicate processing
  • Invalid account number
  • Transaction exceeds floor limit
  • Alteration of amount
  • Merchandise not received by purchaser
  • Merchandise lost by shipping companied
  • Posting direct debits
  • Failure to action requests from customers to cancel direct debits.

How do ensure I never receive a chargeback?

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.

How to avoid loss from Chargebacks

If you are a merchant selling physical goods:

  • Ensure your goods are shipped with a reputable courier or postal service
  • Obtain proof-of-delivery (POD)
  • Ensure that you have a clear returns & refunds policy and information on how you ship goods
  • Provide a tracking number to customers when goods are shipped

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):

  • Have a detailed refund policy
  • Keep a record of work performed
  • Ideally have a contract in place for physical services
  • Ensure your terms and conditions includes details on your dispute handing policy