E-Commerce Beginners Guide: Chargeback

A chargeback occurs when a customer refuses to recognize the charge on his credit card statement. As an Internet merchant, you will have to face the chargeback issues. Different categories of goods and services have different chargeback rates, however every merchant has to be prepared to the chargeback dispute. Frequently, chargeback is the result of fraudulent activities that were not prevented on the stage of initial transaction: as the real cardholder discovers the unknown charges and informs the issuing bank about the fraudulent transactions associated with his credit card. Every credit card holder has 6 months to dispute the charge on his credit card statement. You may receive clarification request (chargeback pre-note) from the issuing bank asking to provide the complete details on transaction. As a merchant, you will have to provide all available data on transaction - payment receipts, delivery receipts, copies of communication with the customer, etc. - to prove that transaction is not fraudulent. Speaking about intangible products, it is ultimately hard to avoid of a chargeback once the chargeback dispute is initiated. Therefore it is important to envisage the authorization mechanisms where the customer acknowledges the receipt of the product.

Here is the list of possible reasons for a chargeback request:

• Card holder did not authorize the transaction
• Card holder requests a copy of the transaction receipt
• Card not used within valid expiration date
• Card-holder claims invalid mail or telephone order transaction
• Card-holder claims merchant changed transaction amount without permission
• Card-holder never authorized transaction
• Card-holder not satisfied with quality of product or services
• Card-holder was denied ability to return item
• Counterfeit transaction
• Customer never received merchandise/services
• Error in transaction amount
• Failure to notify cardholder of pre-authorized amount
• Failure to obtain card-holder signature
• Incorrect Transaction Date
• Merchant knowingly participated in a fraudulent transaction
• No authorization
• Non-matching account number
• Product different from what was described or promised
• Refund not processed
• Services not rendered
• Signature on receipt different from card
• Signature on the card was blank
• Transaction not processed within Visa or MasterCard time frames
• Transaction processed for incorrect amount
• Transaction receipt is incorrect, incomplete, or illegible
• Transaction receipt was not imprinted
• Transaction was not canceled successfully
• Transaction was processed more than once

Merchant is responsible for all chargeback-related expenses unless it is proved that the chargeback request is ungrounded. In such case merchant is granted a reversal.