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Chargeback is the reversal of funds to a customer forcibly initiated by the issuing bank which can be very costly. The most widespread reasons for chargebacks are returned goods, terminated services, disputes, mistakes or fraudulent activities.

However, merchants can minimize chargebacks by ensuring customer satisfaction and transaction reliability, publishing their returns policy and providing a high level of support on their websites.

A credit card chargeback occurs when a consumer is unable to resolve a negative transaction with a particular merchant and seeks a refund from his bank or credit card company. Since the process for seeking a credit card chargeback can be lingering and not easy, a customer may call his merchant to discuss potential complaints instead of immediately requesting a chargeback from the bank. However, if the merchant refuses to work on a resolution, using a credit card chargeback is inevitable.

Apart from the additional charges assessed by the credit card provider (from $10 to $70 per chargeback) chargebacks will cost valuable time. Plus for every chargeback, a significant amount of penalty is involved. For sure chargebacks are to be avoided!

What is the chargeback process?

The chargeback process starts when the cardholder lodges a complaint by contacting his issuing bank about the unathorized transaction.

The issuing bank checks whether the dispute is valid or not. If the bank finds the request valid, it contacts acquiring bank through Visa or MasterCard payments system.

Having investigated the issue, acquiring bank can simply decline the chargeback or, in case of its validity, transfer the amount of money to client’s account and charge chargeback fee as a penalty to the merchant.

Apart from the additional charges assessed by the credit card provider (from $10 to $70 per chargeback) chargebacks will cost valuable time.

What are types of chargeback that merchants usually are faced with?

  • Technical issues
  • Expired authorization, duplicate processing, non-sufficient funds. Sometimes chargebacks are due to technical problems occured during the payment process. Technical problems between the issuing bank and the merchant may lead to cardholders being charged twice for the same transaction. Problems with the authorization process can also lead to account being charged, even if the transaction was declined.

  • Customer dissatisfaction
  • Consumer shows his dissatisfaction with goods or service quality and refuse to pay. The card-issuing bank received a written complaint from a customer stating that a promised service or goods differ greatly from described on the website or are damaged or defective.

  • Fraudulent activities
  • Non-authorized purchase or identity theft. Credit card fraud happens when customer gives his credit card number to unfamiliar individuals or when card is lost or stolen. Fraudsters can use the card to order goods and services. Identity thieves harm victims by using their names and other personal information to open new credit accounts or access existing credit and bank accounts and placing fraudulent charges.

How to prevent and avoid chargebacks?

You can find here some steps you can take to drastically reduce chargeback occurrences.

1. Describe the items you are selling as accurately as possible, add pictures, descriptions, measurements.

2. Your returns, refund and delivery policies must be published clearly on your website. It is useful to make it a requirement that customers read your policy before their order can be processed.

3. Provide your customers with clear and detailed receipt as it give the necessary details to your customers and reduce likelihood of confusion on their part.

4. Respond promptly and properly to any customer service requests.

5. Keep as much information about your customer and the transactions as you can.

6. Retain proof of delivery and obtain your customer’s signature.

7. Keep customers informed about transaction status, merchandise availability and delivery.

8. Your contact details such as physical address, telephone number, email address or contact form must be clearly visible on your website.

Chargebacks can destroy or be completely devastated for small online business so it is inevitable to make serious efforts to avoid them or deal effectively with occured ones. If you receive a retrieval notice you need to have all the necessary information to back your claim evident and promptly available.

There is no easy immediate solution but the merchants must try to develop their own effective anti-chargeback strategy because it is one of the essential things for their successful online business and prosperity.

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