Chargeback Basics You Should Know

This article submitted by: Solid Trust Pay

Chargeback Basics You Should Know

Along with the widespread use of the credit card as a method of payment there is also the rise in various risks associated with the use of credit cards that can dearly cost a business. Chargeback is one such risk which a merchant needs to be fully aware of.

What is Chargeback? It is a payment of the dollar value made by a credit card issuer to a customer who has disputed a charge on his credit card.

Credit card holders in the United States are guaranteed reversal rights by two US regulations, namely The Federal Reserve Regulation Z Truth in Lending Act to govern credit cards and Federal Reserve Regulation E Electronic Funds Transfer Act for debit cards.

Chargeback is s serious concern for merchants as they lose the money that was paid to them by the customer along with the product or service they provided, time and energy and also having to pay processing fees to the merchant bank as well.

The first step in a Chargeback is when a customer files a complaint with the issuing bank disputing a charge on his card. The issuer will then refer the transaction to the relevant merchant bank that will investigate the issue and if unable to resolve it forward it to the merchant who will either accept the charge in the event he does not have proof of the transaction or resubmit it to the merchant bank along with proof such as a sales receipt to prove that the transaction was valid. If the chargeback is accepted the merchant bank will inform the issuer and it will be re posted to the customer’s account. If not it will be sent for arbitration for a final decision.

These disputes could arise due to one of many reasons.

  • Customer disputes – these arise as a result of the goods ordered not being delivered, the received goods being damaged, the goods or services received not being  as it was described, and the recurrence of a cancelled transaction are some such reasons.
  • Authorization issues – where the credit card holder has not authorized the transaction and usually happens as a result of identity theft.
  • Payment processing errors – can occur mostly at the point of sale resulting in duplicate processing.
  • Credit card fraud- can happen when stolen, fake and outdated cards are used.

Considering the widespread use of credit and debit cards in today’s society, it may be an uphill task to completely eliminate chargebacks. But it can be reduced if the merchants are more aware of this and take preventive steps such as checking a card before processing to ensure it is not a stolen card and by keeping accurate sales records in the event the information is required to counter a chargeback. One could also minimize the cost resulting from chargebacks by opening the merchant account with a bank that provides premium chargeback and fraud loss protection.

If you are going to open a merchant account make sure you educate yourself on the facts relating to chargeback and keep up with all the new regulations relating to it to safeguard your business.

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