A chargeback is essentially a disputed transaction initiated by the consumer after a product or service has been purchased. The credit card chargeback happens when the customer contacts the card issuer to dispute the charge. Either way, the chargeback process is supposed to protect consumers from unauthorized transactions, however, this system is sometimes abused in what is called chargeback fraud or friendly fraud, where the consumer abuses the system to obtain a refund. At Gulf Management Systems, this is an issue we help our merchants handle all the time.

Chargebacks can be valid for many reasons, but customers can dispute the charges in many situations. For example:

-Fraudulent transactions from Stolen Card/Identity (Most Common)

-Defective Goods

-Did not receive the item ordered

-Felt the product or service was not adequate or was not what was advertised

-Billed incorrectly

-Could not recognize the charge on their credit card statement

Cost of Chargeback’s

Chargeback fees are usually anywhere from $10.00 to $30.00 per chargeback. These fees set and charged from your payment processing company. Not only does a chargeback cost per occurrence, but it will also take some time to respond to the case with all documentation, not too mention the loss of funds pulled from the business bank account.

Chargeback Process

The process of a chargeback is simple and is done after the consumer pays for the product or service.

1. Cardholder disputes the transaction and contacts their card issuer

2. Cardholder’s bank debits the funds out of the merchant account (Chargeback Fee Charged)

3. Chargeback information forwarded to Acquirer (Merchant)

4. Acquirer receives a chargeback, resolves the dispute, or forwards to the merchant

5. The merchant receives the chargeback and accepts or responds to a case and provides evidence to the acquirer

6. Acquirer than forwards evidence of the case to the credit card network

7. Credit card network receives evidence for case forwarding to the card issuer

8. Card issuer receives documentation deciding to reverse the case in the favor of the merchant or the card holder

Chargeback Response Time

In order to respond and challenge the chargeback, the merchant usually has a time limit of 30 days. However, by the time most merchants receive the chargeback letter in the mail they usually have less than a week to respond, not to mention the merchant now must fax information over to the acquirer. Our payment processing reporting will allow merchants to obtain chargebacks in real time, so as soon as the acquirer finds out about the chargeback a push notification is enabled, notifying the merchant right away, and then allows for the merchant to than respond to the case via easy file upload.

4 Tips to Avoid Chargebacks for Merchants

1.       Payment Descriptor

The DBA or billing description name that is displayed on your consumer’s billing statement plays a big part in a lot of the chargebacks that take place. If the consumer does not recognize the name associated with a purchase they made, then they are more likely to chargeback the purchase. Please be sure to match up the DBA or billing descriptor to match the storefront name or a name the consumer will recognize. In addition to having that correct information you also have to include the phone number of the business on the billing descriptor to make it easier for consumers to call if any issues arise.

2.       Customer Service

To ensure the least number of chargebacks, simply provide the best customer service and if a customer provides any frustration or dismay, please be sure to get in touch with them as quickly as possible to resolve any issue up front. Any chargeback that comes through Gulf Management Systems, you will have real-time notification’s so you can quickly respond to the case.

3.       Fraud Detection

Understand your customers and collect certain information to prevent a chargeback from happening. If a potential customer sounds suspicious, collect more information than normal.

4.       Authorization Form

Obtain an authorization form signed with correct terminology spelling out what the services or product will provide, return policy, terms of service, etc. This authorization form will help the business provide documentation for the actual purchase, in addition to any other evidence.


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