Managing chargebacks as a merchant.

Chargebacks are designed to increase customer confidence in scheme credit and debit card payments - especially when those payments are made online.

Customers can make a purchase knowing that the product or service will be provided as described by the merchant and that their purchase is protected from fraud. The risk of a chargeback acts as a deterrent to merchants who may be tempted to deliver sub-standard goods or services and helps merchants stay transparent.

Customers can't be expected to pay for something that was never delivered, charges that shouldn't have been made in the first place or refunds that were never issued.

Chargebacks are not the same as refunds. A refund happens when a cardholder contacts a merchant directly and asks for their money back. In some instances, the cardholder will need to return the goods and services in order to receive a refund.

Typically customers will raise a chargeback when they disagree with the payment that has been made on their card or they do not recognise the transaction on their statement. Customers are encouraged by their bank to contact the merchant in the first instance. If a dispute is unresolved in that manner, they are able to exercise their chargebacks rights.

Chargeback rules

The rules for chargebacks are set by the card schemes Mastercard®, Visa and UnionPay International. It's important to know that under no circumstances can merchants ask the cardholder to waive their chargebacks rights.

Chargebacks fall into different categories and different reason codes. A chargeback reason code is used to identify the reason for the dispute. Each of the major card schemes have their own system of reason codes and these generally fall into the following categories:

• Technical: Expired authorisation, insufficient funds or a processing error
• Clerical: Duplicate billing, incorrect amount billed or refund never issued
• Quality: Customer claims to have never received the goods as promised at the time of purchase or alleges the services delivered was sub-standard
• Fraud: Customer claims they did not authorise the purchase.

Provide a dispute resolution channel

Encourage your customers to reach out to you in the first instance to discuss any grievances. You can do this by providing a 'disputes contact' in your terms and conditions.

Understand how pre-authorisation works

Pre-authorisation allows you to hold a specific amount of the cardholder's money until the goods or services have been delivered or provided. Prior to the first pre-authorised transaction, the possibility of incremental top-ups (an increase to the original pre-authorised amount) must be disclosed to the cardholder, and their acknowledgement must be recorded. Pre-authorisation is only valid for 30 days from the date the first pre‑authorisation was approved so if you haven't finalised payment within this time, there's a chance it may not be honoured.

Store customer communications

Ensure that any communication relating to your transaction is easy to access in the event of a dispute to support your case e.g. follow up a phone call with an email so that you have evidence in writing.

Embed robust business processes

You can't charge the customer for a process problem e.g. a staff member undercharged a cardholder by mistake and then manually processed the remainder of the payment without their explicit consent at the time payment was made.

Check your T&Cs

Your terms and conditions governing your sale/payment (including your return and refund policies) should be well structured, disclosed correctly and appropriately acknowledged by the cardholder before you take the payment.

Ensure your business is clearly named on the customer's bank statement

For example if your business is called 'John's Store' your bank descriptor should not be 'Sara's House'.

Have security checks in place to prevent fraud related chargebacks

Any unsecure transactions may be at an increased risk of fraudulent activity. Cardholders need only advise their bank that the transaction is not theirs to satisfy scheme rules. Make sure you're protected when accepting card payments online by enabling 3D Secure.