Joe Q. Merchant, a successful e-commerce business owner, opens a letter from the Chargeback Department at his credit card processing company. “What is this?” he wonders, knowing intuitively that this may not be good news. Your suspicions are proven correct when you read this recovery request form in which you must provide information about a particular transaction. While no specific reason is given as to why this request was initiated, Joe knows he must comply to avoid a chargeback, where funds can be withdrawn from a merchant’s account due to a variety of reasons and placed back into the account of a certain customer. .

Joe ponders what went wrong with this particular transaction. Could a member of your staff have accepted an invalid credit card (for example, expiration date)? Has there been a processing error (for example, an input error was made when the wrong account was loaded)? These scenarios are highly unlikely, Joe decides. In all likelihood, a customer has disputed a) the validity of the transaction (that is, whether the customer has authorized the transaction) or b) the quality of the service and / or product (that is, the customer has expressed dissatisfaction and wants a refund).

In accordance with the guidelines established by Visa, Mastercard, American Express, and Discover, Joe Q. Merchant is required to respond with written correspondence, providing all requested information, in a convenient manner, in an attempt to disprove any potential chargeback. (A review committee will eventually make a decision as to the legitimacy of a chargeback.) But the recovery request has indicated the date by which this information should be received. If the merchant offers evidence of a transaction after this date, a chargeback will occur and the merchant will automatically lose those hard-earned dollars that they have already spent.

Online merchants, like Joe, have more difficult hurdles to overcome than retail merchants in resolving chargebacks. After all, those who generally use credit cards have a receipt or proof of transaction. If a card is not swiped through a credit card terminal, retailers must run the card through a manual printer to show that the transaction was authorized. In contrast, those who run businesses online will not have a physical receipt showing that the customer authorized the sale. That is why online transactions are classified as “card not present” or “customer not present”.

Every year, countless chargebacks occur when customers claim they never received the merchandise. In such cases, it is imperative that the merchant has proof of delivery notification, indicating the date with the customer’s signature. If the signature on this notice belongs to someone else (for example, a neighbor) or even if the customer claims they never signed for the item (the signature is not clear), the merchant may lose the chargeback. It is always best for an online merchant to use the Address Verification System (AVS) to ensure that the address on the customer’s credit card matches the billing address. Also, it is advisable to check the CVV2 code for Visa or the CVC2 code for Mastercard, the three digits printed on credit cards near the signature panel on the back of the card, to help determine the validity of a sale. This helps the merchant to help identify the cardholder in a non-face-to-face transaction.

Of course, the merchant can then insist that the billing address and the shipping address be the same to reduce the possibility of a chargeback. (As an added measure of protection, as a proactive maneuver, a merchant may fax a customer an order or invoice form and request that the form be faxed back so that the customer’s signature can be on file. Before 30 days have elapsed from the time the transaction occurred, the merchant can reply that not enough time was provided for shipping, especially if he can present the terms of the agreement, stating the delivery date. If the merchant knows Since delivery will be delayed, it is imperative to contact the customer if the customer concludes that the shipment was never made. Also, at least with phone orders, the merchant may even decide to postpone the charge on the card until delivery is near completion or finished.

The recovery / chargeback request battle becomes even more complex if the customer claims that the product or service does not live up to the customer’s expectations. If this has occurred, Joe Q. Merchant must submit his refund policy and proof that the customer was aware of the policy.

If a product was purchased, the customer must return it before a chargeback can be initiated, at least if the customer used a Visa or Mastercard. Then it is up to the merchant how to proceed (i.e. grant or deny a refund). Disputes related to a service fall into a very gray area. While it is mandatory for the customer to try to reach an agreement with the merchant before attempting to collect the late payment, such a conference can result in a deadlock. The almighty refund policy can help the merchant, but if there are loopholes, the customer is very likely to be deemed victorious. And it should be clear that any “tie” goes to the customer; If the merchant cannot provide conclusive evidence that the services provided were complete and appropriate or if there is reasonable doubt, Joe Q. Merchant will have wasted not only time with the customer but also his money. And if the client claims that the services were not provided at all, Joe must show evidence of his work to the processing bank or a contract explaining that he intended to provide the service at a specified future date. Again, any inconclusion that Joe fulfilled his obligation or planned will result in a slimmer wallet for Joe.

Although Joe Q. Merchant was quick to dismiss the notion that a processing error occurred at the point of sale, you must realize that there is the possibility of human error in any given transaction. What happens, for example, if a customer has been inadvertently billed twice for a product or service? What if a customer canceled a recurring billing charge but was still charged a fee? In business, attention to detail is a must. But if Joe or a member of his staff made a mistake, a credit should be issued to the customer immediately.

Of course, the best way to prevent chargebacks begins with Joe’s actions and not necessarily the customer’s actions. Are there safeguards to avoid processing errors? For example, in telephone orders, do merchant representatives ensure that all digits, including the expiration date, are absolutely correct? Are orders confirmed by fax? Are phone numbers verified against directory inquiries? Are customers contacted by phone to confirm phone number?

Online orders must also be evaluated. Are devices used to prevent fraud, such as the AVS and CVV2 / CVC2 code? Was the customer’s address verified by calling the card issuing bank’s Voice Authorization Center? (Alternatively, the merchant can automatically decline any transaction where there is an AVS mismatch.) Is the refund policy easily accessible and observable on the website? Does a recognizable Doing Business As (DBA) name appear with a concomitant phone number on customer statements? Are signed delivery receipts obtained?

Logic and intuition are also powerful tools for preventing chargebacks. If Joe Q. Merchant has an uncomfortable feeling about a transaction (for example, the customer is willing to pay additional fees for faster delivery of a high-priced item, the customer has a national billing address but a shipping address foreign, etc.), you should proceed with caution. High-priced items are profitable but risky and Joe Q. Merchant must perform his due diligence on such transactions.

A yellow light should also appear for any foreign orders, particularly those originating from certain troubled countries like Singapore or Indonesia. In fact, Joe needs to weigh the benefits vs. the potential cost of doing business outside of the United States.

Although chargebacks can lift a head for any merchant, Joe Q. Merchant realizes that by taking a thorough, practical, and cautious approach, he can substantially reduce or eliminate their occurrence. As an added measure of protection, Joe will conduct business ethically and responsibly and will reach out to his customers to ensure their satisfaction. For example, it will describe products and / or services with precise descriptions, provide a clear and fair return policy and establish a dialogue, whenever possible, with the customer, either before, during or after a given transaction.

Advanced technology to better identify customers (eg Verified by Visa or SecureCode provided by Mastercard) will help reduce fraud and / or limit chargebacks. But until technology catches up with the often unpredictable world of e-commerce chargebacks, Joe Q. Merchant can look to a trusted alternative measure: himself.

Copyright 2006 William Hamilton

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