Beginner's Guide to Properly Handling Credit Card Chargebacks


Beginner's Guide to Properly Handling Credit Card Chargebacks

  • Aug 15, 2020
  • By Jonathan Elliman, CTO

Credit card chargebacks are inevitable, but with some proper configuration and preparation, you can handle these like a pro and significantly increase your odds of winning.

For those that have been accepting credit cards for decades to those that have just recently gotten into the world of credit card processing, there's one downside of the business is handling credit card chargebacks. 

Getting familiar with the world of payment processing for newbies can be stressful, no doubt. It's a steep learning curve from the moment you start researching which service to use, which payment gateway, large and complicated contracts and let's not gets started on deciphering interchange fees. Don't feel alone as anyone that accepts credit cards as a form of payment, all have the same gripes, but unfortunately in the age of contactless payments, it's the 800lb gorilla that you cannot ignore, nor live without. For those with large companies, you most likely have dedicated teams that manage chargebacks 24/7, while other businesses shriek when the notification comes through. Either way, when the notice comes through,there's two things you don't want to do; one is panic, the other is to ignore it altogether.

Chargebacks and Payment Processing 101: A Beginner’s Guide to Understanding Payment Processing

What the Heck Are Chargebacks or Payment Disputes? 
Chargebacks are basically when a consumer disputes the charge on their credit card which can be for many reasons, but what you do next when you receive the notification is what will set you apart from others- and from potentially losing the dispute, dozens of hours and above all, money. What's really sad about the dispute process is that the power is controlled by the cardholder and the credit card issuer, it's you that has to prove your case likewise.

Why Chargebacks Happen
Credit card chargebacks can happen for a variety of reasons, legitimate or not; some of which you may have experienced with your own personal purchases:

-You either never received the item you purchased or the item arrived is nowhere close to what was described when you made the purchase.

-Technical issue where a merchant's system accidentally double charges your credit card for an online purchase.

-Your card number gets compromised or stolen. You only realize when you check your credit card statement and know for sure you didn't order 50 pizzas to be delivered to an address on the other side of the planet.

Cardholders can dispute for simple things like the purchased item or experience they received didn't match the description to what we refer to is buyer's remorse which we believe is ultimately friendly fraud. These are people that purchase something, most likely way above their budget, realize they can't afford it, then use the dispute system against you to buy them more time to pay off their card, or the ugly side, ultimately have you cave and end up giving the item away for free. And the unfortunate reality of it all is that you have to weigh-in on your time versus the value of the item that could be lost to the dispute. This is where those folks committing "friendly fraud" are out to get you.

This is where chargebacks get more complicated and unfortunately, there's dishonest people out there looking to stick it to you. While it may look like your customer is automatically getting a refund on the disputed charge (disputed charges are immediately removed from your merchant account), the funds are actually being held by your payment processor’s “holding account” until the dispute and arbitration period ends. Between the moment the customer files a dispute, or chargeback, and the time the arbitration period ends, you as the merchant, have to become your own forensic accountants provide all necessary documentation to ultimately prevail in the dispute. And only until then, those funds get re-deposited into your merchant account. If the customer wins the chargeback, they win the case and receive the refund as a credit to their next credit card statement.  

Does it Hurt My Business Receiving a Chargeback?
Long story short, yes, because your credit card processor will levy a fee against your account for every dispute. That amounts to anything from about $25 to upwards of $30 per chargeback depending on your agreement. And to add salt to the wound, even if you win a chargeback dispute, the chargeback fees still apply. And guess what, there's no charge to the consumer for the dispute loss. So you can see why there's nothing stopping those friendly fraud disputes as there's no risk on their side for submitting fraudulent disputes, but can cost you thousands of dollars- and hundreds of hours every year. And the capper is that friendly fraud or not, your payment process can exercise their right to shutdown your payment processor should they deem that you are receiving too many disputes, legitimate or not- won or not.

1. Ignoring chargebacks can hurt your business credit in the long run, financially and possibly the credit card rates afforded to your business, ultimately costing your business more operating budget. If you ever decide to a different credit card processor, or in the need of a bank loan, this could play a role in the rate you pay or even if your business gets approved.

2. The longer you ignore tackling the dispute process, the longer you have to wait to get those funds back.

3. Plain and simple, banks tend to view a business that doesn’t dispute chargebacks as admitting guilt.

4. Beyond losing revenue for the products lost to the dispute- and the fees associated with it, ignoring a chargeback actually rewards those friendly fraud disputes.

How to Quickly Respond and Resolve a Chargeback Issue
Depending on your payment processor, you may receive an alert via email or in the mail. If you use CellarPass Payments (for ticketed events), you'll receive an email alert from our team with all the details. What you do next is the most important step as this all falls on your shoulders- and time is not on your side.

1. When you received the dispute, be sure to note the amount of time you have and how you submit the information as well as what evidence (and the format) you have to provide in response.

2. Immediately location and identify the guest and their purchase. Whether it was for an item, a ticket or a reservation, it's best to look at the entire history of their purchase to understand everything about it such as when they placed the order, did they make any changes afterwards, did they receive their purchased items and so forth.

3. Get to know the customer in all your system touchpoints. Are they a constant complainer or is this a unique case. Look at their purchase history in CellarPass, but also in your Point of Sale, eCommerce and other systems.

4. Have they taken their dispute to social media? As soon as you get a chargeback, increase your Spidey-senses and make sure your social media channels are not getting blown up. Some friendly fraudsters will actually start here, claiming that you never answered their calls or emails. Whatever you do, do not air your conversation in a public domain. Simply respond to their postings with, "we're eager to make you happy, we just request that you call us so that we can work this out in a mutual manner." Taking the conversation offline will help diffuse the situation and not invite others to chime in because you failed to respond.

5. Take screenshots of all the details about the customer, their disputed order and any email conversations with the customer. Bundle this all into a single PDF file and store that on a shared drive (internal one) where all your customer service reps have access to. Come up with a file naming convention that makes sense.

6. CellarPass provides you access to all of the email logs for you to use for your dispute. So if guest is complaining they never received their tickets or never received a confirmation, nor a reminder, you have this evidence in your favor. Take screenshots of all the communication logs and make that part of your PDF evidence package. Submit this all on time and be sure to note when and how you submitted the evidence. Some payment processors will provide a receipt when submitting. Take a screenshot of it.

7. Depending on your payment processor, they may provide you with an update or a request for more information. Be sure you fully understand what they are asking for and provide it promptly. Again, anytime you have a conversation or submit documentation, be sure to note that in the file for the dispute.

How to Prevent Chargebacks from Happening
There are plenty of ways to prevent the legitimate chargeback disputes from happening, one thing to note is that this is an evolving and ongoing project. If you notice a pattern, get to understand what's triggering the pattern. Are disputes being filed because of legitimate reasons or are they fraudulent? If they are legitimate because your description was vague, then immediately correct the description as waiting another day, just leaves you exposed to more disputes. If you can't resolve this quickly, seriously consider removing the item from your website and don't offer it for sale until it's been corrected properly.

Write a Clear and Enforceable No Show or Cancellation Policy
CellarPass provides you with some standard Cancellation Policies, but these are NOT meant to be used for every type of event. Make sure your policy clearly defines when a guest must cancel by and if they don't what is the cancellation fees and the required route to properly cancel. Above all, do not accept guests sending emails or leaving voicemails in the middle of the night as a legitimate means to providing you a cancellation. With CellarPass reservations, guests can cancel or reschedule, online, up to your Cancellation Lead Time and they know this.

Guests will no doubt play dumb and communicate that they were not aware of your cancellation policies, but our platform will provide these policies before they book (pre-confirmation page) after they book (confirmation page) the reminder email (sent 24 hours before their arrival) and of course, be sure your teams when booking guests or selling tickets online communicate this BEFORE submitting the transaction.

Need more assistance? We're here to help you win and protect your bottom line. Give us a shout at (855) 423-4448 or submit a support ticket.

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