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Chargebacks (AKA Claw-Backs)
Chargebacks are often seen as another business expense.
However they don't need to be...
The facts:- In the United Kingdom the right of a consumer
to chargeback is limited to: goods costing less than
£100 (over £100 then section 75 of the Consumer
Credit Act applies). American Express, MasterCard and
Visa cards; only if goods paid for arrive damaged, or
not as described or if the seller has stopped trading.
In other cases such as for goods costing more than £100
where a claim can be made for misrepresentation by the
seller or breach of contract.
The Truth:- Unfortunately certain online industries
are more prone to Chargebacks than others and more often
than not should never have happened *. Typically travel,
subscriptions, dietary, adult, music and film downloads,
gaming, file sharing and other intangible goods (to
name a few) are most at risk and is one reason they
are classed as high risk. However NOBODY, regardless
of what you may think, is Chargeback immune.
Please use the links below to learn more about
What are chargebacks
and why they occur?
A chargeback is when a credit card user (your customer)
successfully disputes a transaction. Disputes typically
arise from the customers dissatisfaction with merchandise
or services and represent one of the biggest risks faced
by merchants accepting online payments. Not only are
they costly, they can also get your merchant account
closed as both Visa and MasterCard allow only 1% of
the total number of your monthly transactions to be
Visa reported 70% of all chargebacks
are actually fraudulent.
First of all Chargebacks can happen regardless of what
you are selling or how you run your business and are
pretty much inevitable. Nobody has a 100% safe business
when it comes to Chargebacks and it's the legal right
of every credit card holder to do one within 6 months
of making a transaction (so make sure you keep all transaction
details for at least 12 months).
Chargebacks are often necessary because a customer
has indeed received poor customer service or had their
card used without their authorisatiuon. However that
doesn't always mean that by doing one they are being
fair. People will sometimes deliberately Chargeback
because as they are simply wanting said product or service
for free, cannot remember what they purchased or cannot
be bothered to ask for a refund. This is also known
as friendly fraud.
As previously stated it is not possible for you to
avoid Chargebacks completely, however, the information
in this section could help you reduce the number of
Chargebacks you may receive.
If a merchant cannot fulfil its obligations to
its customers i.e delivery, replacement or refund,
or alternatively a card has been used fraudulently,
the genuine cardholder is likely to return to
their card issuer to begin a Chargeback of any
amounts paid or to dispute unrecognised transactions
that have appeared on their statement.
In the normal course of business, Chargebacks
are passed from the issuer (credit card company)
to the acquirer (who is debited by the issuer),
who in turn would return to the merchant to either
gather sufficient information to defend the Chargeback
claim, or to recover monies paid in Chargebacks.
Unfortunately, if in the meantime
the merchant has gone out of business the Chargebacks
are unlikely to be defendable and the Acquiring
bank will stand the loss. This is why we implement
rolling reserves and deferred settlements, to
mitigate this exposure.
does not prevent Chargebacks
Authorisation of a transaction does not guarantee
payment; it will only check the availability of
funds at the time of the transaction and that
the card has not been reported lost or stolen
at the time of authorisation.
Why a Chargeback
Incorrect account numbers
Claims of service not
being up to scratch
Claims of merchandise
Merchandise or service
not as described
One way to reduce the number of Chargebacks is
to provide good customer service and have a high
quality of goods/services offered, as this will
reduce the number of cardholders raising disputed
transactions with their card issuer.
For further information about providing high
standards of customer service within your online
store refer to:
with a Virtual Terminal account
Criminals like to place orders over the phone using
stolen cards because they know that it’s sometimes
harder for you to detect fraud - depending on your virtual
terminal and merchant account facility. For example
our VT uses the same anti-fraud measurers, however the
PayPal account (and many others) do not. Also extra
security measures such as 3D Secure can not be used
in conjunction with a Virtual Terminal. Something else
criminals know all to well.
Please find below information on the basic Chargeback
- One of your customers has
a problem with a transaction on your website.
- The customer informs their
card issuer of the problem, and asks for their money
- The card issuer does some
research to see if the shopper's demand is reasonable
- If the customer seems to have
a case, the card issuer makes a provisional payment
to the shopper
- The card issuer starts the
chargeback process, and obtains funds from the acquiring
- The acquiring bank sends a
'Notification of Chargeback' and a 'Request for Information'
- You receive an e-mail that
is the Request for Information (RFI).
- If you ignore the RFI the
chargeback automatically proceeds unchallenged and
the money is gone
- If you reply to the RFI we
forward any information you can give about the transaction
to the card issuer
- The card issuer looks at the
information you have given and follows the rules associated
with the card
- The card issuer decides if
the information you provide satisfies their criteria
* If the information you supply does satisfy the criteria.
You are paid for the transaction after a certain period
of time. If you fail to satisfy the criteria, or arrives
too late, the chargeback is automatically valid and
the bank pays the card issuer from your account. We
then charge you an admin fee for processing the chargeback.
Ways to minimize
Good customer service
The easier it is for customers
to contact you and speak to a real human being,
the less likely they are to resort to chargebacks.
Confirm what they have
purchased and where it will be delivered
Always provide a order confirmation
page showing the details of the purchase. This
should include your company name, what they purchased,
their billing and delivery address and how to
contact you. It is also a good idea to provide
the descriptor that will appear on their card
or bank statement - this is especially so for
payment services where by you share a descriptor.
Email them when you have received
an order and shipped it out. Contact them back
straight away if they contact you. Email is the
best way to communicate as it provides proof.
Have a good refund policy
A good refund policy is essential.
It spells out exactly how a customer can be refunded
and how they need to go about it. Make it up front
and easy to find
Provide terms and conditions
and make them easily accessible
All terms and conditions need to be clearly stated
on all pages of the website. You should include
your cancellation and return policy. Making the
customer to “Check the Box” as part
of the agreement is also recommended.
Save as much information
Collect and store as much information
on the customer as well as the order as you can.
This will allow you to show that they did indeed
buy from you knowingly.
Use 3D secure and other
This forces the consumer to take
extra steps to validate their identity at the
time of the sale which can defer them from committing
“friendly fraud” later on.
Get a signature whenever
Proof of signature is ideal as
it stops a customer from using the excuse that
they did not get the item.
your own data against them
Using your own data to
prevent chargebacks is a very effective way to
stop a thief from coming back and striking again.
Unfortunately, merchants often don’t Blacklist
the users that did a chargeback allowing new transactions
to go through. Many gateways and processors offer
this service for free to their merchants. They
take the data from all of the merchants on their
systems and use it to create a master blacklist.
So even if the merchant did a chargeback with
a different merchant you may be protected.
With all of our accounts when a Chargeback is issued
you will receive an RFI - Request For Information.
Even when you do receive a chargeback, you may be able
to resolve it without losing the sale. Simply provide
your acquirer with additional information about the
transaction or the actions you have taken related to
For example, you might receive a chargeback because
the cardholder is claiming that credit has not been
given for returned merchandise. You may be able to resolve
the issue by providing proof that you submitted the
credit on a specific date. In this example and
similar situations, always send your acquirer as much
information as possible to help it remedy the chargeback.
With appropriate information, your acquirer may be able
to resubmit, or “re-present,” the item to
the card issuer for payment. Timeliness is also
essential when attempting to remedy a chargeback.
Each step in the chargeback cycle has a defined time
limit during which action can be taken. If you or your
acquirer do not respond during the time specified on
the request—which may vary depending on your acquirer—you
will not be able to remedy the chargeback.
Although many chargebacks are
resolved without the merchant losing the sale, some
cannot be remedied. In such cases, accepting the chargeback
may save you the time and expense of needlessly contesting
Fraud Prevention plays an important role in the reduction
of the number of Chargebacks you receive. Here is a
number of fraud prevention facilities and procedures
- what is it and how to stop it?
Friendly fraud (we personally hate this industry
term as there is nothing 'friendly' about it) happens
when a customer makes a credit card payment with their
own card and then issues a chargeback through through
the card provider after receiving the goods or services
with the aim for getting them for free (in other words,
theft!) or because they fear that their bank statement
may be read by someone else and they get into trouble
(as is often the case in the adult industry).
"Friendly" fraud differs from online
fraud committed by criminals using stolen credit
cards. The challenge with friendly fraud is that there
is no way to verify the authenticity of the actual transaction,
which is in fact legitimate. We
find that this happens more with higher risk merchants
and also adult ones.
click here to learn much more about friendly fraud
Visa and MasterCard
30: Services Not Provided or Merchandise
41: Cancelled Recurring Transaction
53: Not as Described or Defective Merchandise
57: Fraudulent Multiple Transactions
60: Illegible Fulfillment
62: Counterfeit Transaction
71: Declined Authorization
72: No Authorization
73: Expired Card
74: Late Presentment
75: Transaction Not Recognized
76: Incorrect Currency or Transaction Processing
77: Non-Matching Account Number
80: Incorrect Transaction Amount or Account Number
81: Fraud—Card-Present Environment
82: Duplicate Processing
83: Fraud—Card-Absent Environment
85: Credit Not Processed
86: Paid by Other Means
96: Transaction Exceeds Limited Amount
4802: Requested/Required Information
Illegible or Missing
4807: Warning Bulletin File
4808: Requested/Required Authorization Not Obtained
4812: Account Number Not On File
4831: Transaction Amount Differs
4834: Duplicate Processing
4837: No Cardholder Authorization
4840: Fraudulent Processing of Transactions
4841: Cancelled Recurring Transaction
4842: Late Presentment
4846: Correct Transaction Currency Code Not Provided
4847: Requested/Required Authorization Not Obtained
4849: Questionable Merchant Activity
4850: Installment Billing Dispute
4853: Dispute — Defective Merchandise/Not
4854: Dispute — Not Elsewhere Classified
(U.S. region only)
4855: Goods or services not provided
4857: Card-Activated Telephone Transaction (fraud
4859: Change to Addendum, No-show, or ATM Dispute
4860: Credit Not Processed
4862: Counterfeit Transaction Magnetic Stripe
4863: Cardholder Does Not Recognize—Potential
4870: Chip Liability Shift
4871: Chip/PIN Liability Shift
website's to help prevent Chargebacks
There are many different website's and bits of software
available to help you counteract Chargebacks. Below
are just some of the ones we found doing a simple Google
Please note that we do not endorse any of these and
encourage you to do your own checks before signing up
with any of them.
offers a comprehensive, two-part chargeback management
solution: preventing and fighting chargebacks. At
each stage of this two-fold approach, our chargeback
experts use innovative strategies to minimize risk,
optimize profitability, and ensure long-term growth.
works with telcos around the world, leveraging their
mobile network data to match whether the name and
phone number being given on the online checkout page
matches the mobile device that is near the PC or laptop.
examines all your user data, spotting fraudsters while
you still have time to block them. Which means fewer
chargebacks, better margins and uninterrupted sales
Our own Smart
Dispute System (standard account solution only)
As part of our direct merchant account solutions we
provide an automated “Smart Dispute” system
that fully automates the chargeback dispute process,
making sure deadlines are met and no chargeback goes
unresolved. Chargebacks are electronically routed to
our proprietary Smart Dispute system, where they are
analyzed and disputed based on your behalf. Our chargeback
management team is also on hand to assist you in implementing
best practices for avoiding chargebacks.
retrieves and disputes chargebacks on behalf of the
chargeback thresholds to ensure merchants remain within
chargebacks from occurring by stopping fraudulent
transactions from being processed
merchants in disputing invalid chargebacks and recovering