Chargeback Best Practices

Contents

Summary. 1

What is a Chargeback?. 2

How It Starts. 2

Different Stages of a Chargeback. 3

Assisting with Evidence. 4

Best Practices. 5

Merchant Level 5

Manual Card Entry. 5

Online Booking / OTP (Over the Phone) / Cancellations. 5

Additional Charges. 5

PortCo Level 5

Enforcing use of AVS settings. 5

Summary

This document aims to provide an understanding of chargebacks, covering various essential aspects for merchants.

This resource emphasizes the significance of representment, offering best practices and insights into effectively challenging and disputing chargebacks. You will learn how to compile compelling evidence and construct persuasive arguments to increase the likelihood of a successful chargeback reversal. Key strategies are outlined to help businesses enhance their representment processes and regain revenue lost to chargebacks.

Moreover, the document provides perspective for mitigating future chargebacks. It presents actionable techniques and proactive measures that merchants and PortCo’s can implement to reduce chargeback occurrences.

What is a Chargeback?

1. Happens when a cardholder initiates a dispute with their issuing bank regarding a transaction which was charged on their credit card.
2. In a chargeback, money that had been deposited into the merchant bank account is taken back
3. A merchant has the opportunity to respond to the chargeback by presenting documentation to do so.
4. Once the issuing bank makes a final determination based on information provided, the chargeback is resolved in favor of either the merchant or the card holder.
5. Draft Retrievals – Bank inquiry process to validate the origin of a charge if it is not clearly known.
   • There is no financial impact with a draft retrieval but, failure to respond has the potential to lead to an unreversible chargeback.

How It Starts

1. The card holder contacts their issuing bank and disputes the transaction for one reason or another.  (It is either Fraud or Non-Fraud)
   • Fraud – the cardholder claims to have “No” knowledge of the transaction.  There is also this thing called friendly fraud, where someone they know uses their card without their permission.  Sometimes in the case, the issuing bank requires the cardholder to press charges on the individual before a dispute can be done. 
   • Non-Fraud – The card holder does have knowledge of the transaction, “But” disagree for one reason or another (ie, dissatisfaction, cancelled services, merchandise not received, and the list goes on)
2. Once a chargeback is initiated by the card holder, Fullsteam is notified by our acquiring bank and begins an email notification cycle around the stages outlined in the next section.

Different Stages of a Chargeback

Below are the 4 stages of a chargeback. The entire chargeback cycle can take from 30 to 120  days depending on the speed of updates from the issuing banks.

The source of all notifications will vary based on PortCo, this is for initial notice and the arbitration process.

Ex. From: Support@{PortCo Name}.Zendesk.com

Initial Notification  
Fullsteam will send an email notification to the merchant for the chargeback.

All Chargebacks will have ‘Chargeback Notification’ in the subject line.

1. At this time the amount of the chargeback is debited from the merchant’s account.
2. The notification provides a 10-day timeline for the initial response for representment.

Representment  

This is the merchant opportunity to present their side of the story and provide supporting documentation.
The merchant must respond by the date outlined in the chargeback initial notification (10-days).

• If additional time is needed, extensions can be evaluated by contacting the Fullsteam chargeback team.

This is a very important step where the quality of the information provided being precise and presented in a compact approach is a large contributor to the success of overcoming a chargeback dispute.

This is the only opportunity provided by AMEX to present your case.

• Please see our Best Practices for more information.

The next step can be either a decision or Pre-Arbitration.

Pre-Arbitration - Visa/Discover/Mastercard
If the issuing bank declines the initial submission, the case may go to pre-arbitration. This is a second chance to present more compelling or complete evidence.

** Amex does not have a pre-arbitration process; these cases go directly to decision.

It is important to note that all cases do not enter pre-arbitration, this is contingent on the card brand or issuing bank.

Arbitration – Visa/Discover/Mastercard
Final stage, at this point the decision is made by the card network.

1. A fee of $500 - $1000 is assessed to the losing party.
   • This will be listed on their monthly processing statement (card brand fees).
     • This is in addition to the chargeback amount.

Assisting with Evidence

Important things to keep in mind when preparing your response

1. Be honest, if there was an issue of any type, disclose the issue and the steps you took to resolve with the card holder.
2. Explain your documentation in full detail, remember the issuing bank reviewing your claim is unfamiliar with your business practices.
   • Explain your documentation, what does it represent?
3. Never speak negative of the card holder or issuing bank, be professional and detailed as possible, remember the merchant is their own best defense.
4. Be sure to address the card holders’ claim in your response.
5. Requested documents will vary depending on the exact nature of the chargeback.
   • This means there is no one approach to overcome a dispute
6. All documentation must be presented in one PDF Word document.

Best Practices

Merchant Level

Communicate!  Be communicative in response to complaints prior to them evolving into a chargeback.

Always alert customers of any shipping delays or any issues that may arise with their orders.

Manual Card Entry

1. If a chip card is presented always insert the card into the card reader, NEVER manually enter the card number if all possible
2. If you must manually enter a card number be sure to:
   • Obtain a card imprint on the receipt along with the card holder’s signature and a copy of the identification.
     • Ensure the identification presented matches the name on the card that is being used.
     • It is not illegal to photocopy the picture identification
   • If you are manually entering the card number, ensure you obtain the CVV on the back of the card. 
3. If you are a merchant that accepts online reservations, it is a good idea to have the card holder present the card used along with matching identification to ensure it matches appropriately.

Online Booking / OTP (Over the Phone) / Cancellations

1. It is good practice to have a card holder agree/acknowledge a cancellation policy prior to making payment.
   • Issuing banks & card brands want to see where their card holders were aware of this policy PRIOR to making a payment.

Additional Charges

1. If you are adding additional charges to a card holder’s bill, be sure they are aware of the additional charges and what they are for and have agreed to them prior to you charging their card.
   • Notification to the card holder of any additional charges via email or text message prior to charging their card is recommended.
2. Always process credits in a timely manner, and do not process a transaction if it was cancelled or voided.

PortCo Level

Enforcing use of AVS settings

Address Verification System a system that checks address information provided by the customer during a transaction with this information on file with the bank.  This adds an additional obstacle to helping with fraud and identity theft.

Disclaimer

1. AVS is only meant to be one of many tools in your arsenal against fraud.  You can’t rely on it to stop sophisticated forms of fraud, but at the right settings, it can effectively screen out the low-effort fraudsters.
2. When fighting a friendly fraud chargeback, proof of AVS match can serve as compelling evidence in your favor – especially if the purchase was shipped to the same address.  AVS can prevent fraud by turning away fraudsters attempting false credit purchases.
3. When a chargeback is initiated, a merchant may not have representment rights if they can’t provide information showing that they made a good faith attempt to ensure the transaction was valid.
   • There are many anti-fraud measures that can be fulfill this requirement, but AVS is the simplest and easiest to implement.

How does AVS work?

1. AVS is activated when the transactions being authorized. 
2. The cardholder provides an address which is entered into the merchant's payment gateway, and AVS compares the numeric parts of the address – the street number and ZIP or postal code – to the address on file and generates a code. 
3. This code indicates whether there is a complete or partial match, or if matching is impossible due to lack of support from the issuing bank or some other error.
   • The merchant can use this code to decide whether to proceed with the transaction. 
   • Usually, this decision is made automatically according to rules the merchant set in their payment gateway, in this instance it would be within software.
4. For every merchant, the decision as to how permissive or restrictive to set their AVS matching requirements depends largely on their customer base, but also on how much risk they’re willing to take on.  The right AVS settings varies from merchant to merchant.