Chargebacks FAQ’s
What is a chargeback?
A chargeback is what happens when a cardholder challenges a processed transaction by reaching out to their issuing bank for reversal of the charge. The reason could be that the merchant’s client is disputing the validity of a transaction and is requesting the charge to be reversed, or the client is unsatisfied with the service and is requesting a refund.
How am I notified of a chargeback?
Typically, the first notification you will receive is an amount that is different from your fees or deposits being debited from your bank account. We always recommend looking further into any unknown amounts. At Payfacto, chargebacks notifications are sent by email, and chargebacks can be consulted on the merchant portal. By default, you are set up to receive this notification at the same email address you provided in your application as the customer service email.
Why did I receive a chargeback?
When dealing with credit or debit transactions, a cardholder has the right to dispute a chargeback for a multitude of reasons such as fraud, failure to deliver goods or services or if they feel mislead by the business practices they were exposed to. A “dispute” provides an issuer with a way to return a disputed transaction. When a cardholder disputes a transaction, the issuer may request a detailed explanation of the problem from the cardholder. Once the issuer receives this information, the first step is to determine whether a dispute situation exists.
Primary reasons Cardholders initiate chargebacks include:
They are dissatisfied with merchandise or a service
They never received the merchandise or service
The return/exchange policies were not clearly visible
They never authorized the charge (or do not remember authorizing the transaction)
A recurring charge they had previously requested be terminated
Currency conversion rates are unexpected
Transaction being re-entered with an invalid/expired authorization code
When a dispute right applies, the issuer sends the transaction back to the acquirer and disputes the dollar amount of the disputed sale. The acquirer then researches the transaction. If the dispute is valid, the acquirer (in this case, our processor TSYS) deducts the amount of the dispute from the merchant account and informs the merchant.
What do I do once I receive a chargeback?
Do not issue a refund to the cardholder as the funds have already been collected from your account. Once the notification received, we recommend that you locate the disputed transaction and decide on how to proceed.
How do I dispute a chargeback?
The following steps can be followed to dispute a chargeback:
Review the chargeback reason
Gather all supporting documentation which proves that the chargeback is invalid
Submit a compelling dispute package in English and upload documents to Merlink using your case number, which will start with the number 2
What should be included in a chargeback dispute?
When preparing a chargeback dispute package, it is important to ensure that everything is very clear and that you provide exactly what the chargeback response code or response letter requires as proof. In addition to providing proof, it is recommended to provide a rebuttal letter. You can think of a dispute like a court case. The issuing bank is the jury, and the rebuttal letter outlines the case you’re making to the jury, arguing why you’re innocent of the claim against you. In this rebuttal letter, you should identify yourself, list the facts and explain the situation. Make sure you keep it simple and make it specific to the reason code.
As for which specific documents to provide, we recommend consulting the Visa and Mastercard guides linked below.
Mastercard: https://www.mastercard.us/content/dam/public/mastercardcom/na/global-site/documents/chargeback-guide.pdf
How long do I have to reply to a chargeback?
Payfacto recommends that you respond to all chargebacks within 5 days of notification to ensure the dispute is executed on time.
Why does the chargeback amount differ from the initial transaction?
Chargeback amounts can differ for two reasons.
If the card type that was used was foreign, exchange rates apply. The cardholder disputes the amount they were charged in their own currency, not the merchant’s.
The cardholder can dispute a portion of the transaction, for example, the initial transaction was $150.00 but they charge back $90.00.
Do I pay a chargeback fee if I win a disputed chargeback?
Yes, you pay a chargeback fee regardless of the outcome of the dispute. Please consult your contract for more information.
Does Payfacto pay for or cover my chargebacks?
No, we do not. As soon as the processor, TSYS, receives the chargeback case, the chargeback amount is withdrawn from your bank account and returned to the cardholder.
How does Payfacto help in this process?
At Payfacto, we are responsible for forwarding the acquiring bank’s notification and providing you with information regarding your chargebacks. We can help with providing clarification on what proof to provide for the dispute. We also offer fraud prevention systems such as Address Verification Service (AVS) and 3D secure (3DS) which may come at an additional cost. AVS allows you to match the billing addresses provided by customers with those on-file at the issuing bank. Mismatched billing information suggests fraudulent activity. 3DS works like an online PIN code, users will be redirected to a separate page to enter a unique code before proceeding. We recommend speaking to your account manager if you are interested in these features.
How do I know whether I won or lost a dispute?
If a chargeback is closed in your favor, the amount will be refunded to the merchant’s account. You will receive a reversal notice if you win a chargeback dispute. If the amounts are not refunded after 30 to 45 days, then the chargeback was closed in the cardholder’s favor.
Why did I lose my chargeback dispute?
If you lose a chargeback dispute, it means the bank reviewed the documents from the dispute package submitted, and decided the evidence provided does not prove the chargeback to be invalid.
What is pre-arbitration and arbitration?
A pre-arbitration case occurs when the cardholder and issuing bank uphold a chargeback that was disputed and won by a merchant. A pre-arbitration is a formal request from the issuer advising the acquirer that their cardholder’s claim is still valid and that they will request the card association to make an arbitration ruling on the dispute. At the pre-arbitration stage, there are two options available to you:
Option 1: Accept. This will initiate a second debit to your account for each of the transactions and will end the dispute.
Option 2: Decline. This will indicate that you wish to continue to contest the dispute. The issuing bank will have the right to file an arbitration case with VISA or MasterCard. If they rule in favor of the issuer/cardholder, you will be debited for each transaction amount and any associated fees (500$-$1500 and upwards per case). Please note that if you do not answer a pre-arbitration, the assumption will be that you are declining. Important note: If you decide to dispute the pre-arbitration/arbitration, you must provide additional supporting evidence. You cannot resubmit the information from the initial dispute. If you do not have additional evidence to submit, you should not proceed with the pre-arbitration as it will be refused, causing you to be liable not only for the chargeback values but the associated arbitration fees.
Why can’t I see my AMEX chargebacks?
If you are a part of the Amex OPT blue program, your chargeback service will be processed with Amex. We suggest that you reach out to their customer service team for further updates.
How do I consult a chargeback on the merchant portal?
Log into the merchant portal.
Select your merchant ID (MID); you can select multiple MIDs, but the resulting information will display chargebacks for all selected MIDs.
Click on the Date Range field and select the start and end dates you want to retrieve chargeback information for. NOTE: Because chargebacks only appear after a cardholder receives their statement, you should expand the date range to the last 6 months (or more) so it includes the date of the transaction causing chargeback indicated in the chargeback notices you received from PayFacto.
After you select the date range, click the Filter button.
Expand the Reports menu and click Detailed Activities; in the Activities Summary section, click on Chargebacks. The Daily Summary of chargebacks for the selected date range appears.
Review the information and take note of the date of the original transaction, the case number, and the amount of the original transaction.
How can I reduce chargebacks?
Here are a few best practice suggestions to help you avoid chargebacks and alleviate concerns:
Customer service/ satisfaction - Communication is key. Overall, service and being easily accessible allows clients to reach out and resolve issues directly with you as opposed to contacting their bank to open a chargeback. If the customers know they can simply contact you for a resolution, the need to reach out to the bank is far less likely.
Never accept an expired card – If a customer’s payment card is expired, reject the sale. Expired cards are invalid, and you risk an authorization error chargeback by accepting one.
Order confirmation + tracking number (If applicable) - Emailing confirmation is another way of validating the cardholder (CH) and linking them to the sale. It’s a form of protection against clients claiming, “Merchandise Not received”. If a chargeback is received, you will have a documented record of sale, proof of delivery, delivery address, policies, CH info etc. Implementing things like a digital signature, IP address verification etc, at the time of purchase or upon receival of goods will also reduce chargeback numbers.
No hidden fees - Chargebacks related to hidden fees are generally closed in the clients favor 98% of the time and diminishes the customer experience and the likeliness of them returning. It also increases chargebacks under reason code “Transaction not recognized, Not as described and Fraud unauthorized”.
Allowing refunds and clarify cancellation policies - If customers can get refunds through you directly, this reduces the chargeback numbers significantly. Providing cancellations policies safeguards merchants in cases where the client opens a chargeback for nonrefundable/ partially refundable items/service as it would all be written in the terms on the sales invoice, email confirmation etc.
Be aware of frequent occurrence of Friendly Fraud - Customers often have buyer’s remorse and change their mind or does not recognize the charge on their billing statement due to descriptor or difference in currency.
Clear Payment descriptor - Many customers simply do not recognize the name associated to the charges
Delivery proof + Time frame – It is important that you stick to the stipulated delivery times frames and/or provide a notice if there are delays (accepted by the client). You can offer refunds, rebate, or other form of compensation for delay.
8. Opting for secure cc verification AVS/3DS services - Though these services have associated fees, they ensure the validity of transactions/authorizations, provide clients with extra security, increase perceived value of business, and lessen losses thus increasing profits and growth.
9. Maintaining Records - These sale records will aid when responding to disputes as they serve as evidence and authentication of sales.
10. Vetting Suppliers - You should always do their due diligent on suppliers, wholesalers etc.
11. Monitoring staff behavior and employee conduct – You should provide employees with chargeback training and avoid stretching employees’ responsibilities and access.
In store sale authentication/verification - It is recommended to request proof of ID on larger sales and to always use the correct cardholder verification method—signature, PIN, Chip verification. When in doubt, for example after multiple declines using different cards, call the bank to authenticate cardholder information/sale.
Set Passwords and Rules – Make sure to provide passwords associated to each employee to be able to track activities and keep and eye on clerical errors such as double-billing or an incorrect amount charged.
If you have any further questions not answered by this document, please contact us at chargebacks@payfacto.com for further support.
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