According to Visa and MasterCard policies any processed transaction can be disputed by a cardholder. These disputes are called chargebacks and are regulated by a series of rules set by these payment systems. So, in the following article we will talk about this process and card networks policies in case it occures.
What Is A Chargeback?
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 such case are returned goods, terminated services, disputes, mistakes or fraudulent activities.
However, merchants can minimize customers claims by ensuring their satisfaction and transaction reliability, publishing their returns policy and providing a high level of support on their websites.
According to card schemes policy, there is a strict limit on the total number of transactions that can be charged back before additional fines and penalties are levied.
In case merchant’s disputed transactions level exceed 2% of its total sales volume, his business becomes subject to a chargeback monitoring program administered by Visa or MasterCard. At this point, there is a very good chance that the merchant’s account will simply be terminated by its acquiring bank or payment service provider.
How does disputed transfer process flow?
Let’s see how the typical payment reversal process develops. The resolution of a typical transfer dispute can take anywhere from six weeks to six months.
The funds reversal process starts when the cardholder lodges a complaint by contacting his issuing bank about the fallacious or unathorized transaction. The issuing bank checks whether the dispute is valid or not.
If the bank finds the request invalid, the transfer dispute is simply declined and the customer is charged a chargeback fee as a penalty. If the issuing bank sees an erroneous transaction, the bank then initiates the usual payment reversal process to obtain credit from the merchant’s acquiring bank. Some research on the validity of the reversal payment claim is made and a merchant are sent a notification to inform him of a pending request.
If he can’t provide sufficient evidence of invalidity of the funds reversal, they will decline it and inform the issuing bank. If the disputed transfer is valid, the amount of it is removed from the merchant’s account and the merchant’s bank will notify the merchant about the outcome.
How do card networks prevent fund reversals?
3D secure is a protocol designed by Visa and licensed by MasterCard that gives an additional protection against unauthorized transactions when shopping online.
Most merchants display the Verified by Visa or MasterCard Secure Code logo on their site. Using of this system gives a zero liability to merchant and passes all the responsibility to the issuing bank.
On completing the checkout process, the customer will be redirected from the online store to the website of the card issuing bank to get the authorization for the transaction.
Secure code is quickly confirmed by the financial institution and then the purchase is completed. Merchant will not know your code as it is an alternative of your PIN or personal password.
So, even if fraudster knows your card number, the purchase will not be completed without inserting this secure code.
Unfortunately, nobody is insured against payment disputes while doing online business. However, by implementing some protective measures and making sure that customers are satisfied with their purchases you can protect your business and avoid customers claims.
Card schemes payment reversal policy
No doubt, in order to implement transaction in an appropriate manner, the payment reversal rules are developed. Without them all payment process would be a little confusing.
Every card scheme has its own policy, which should be followed by deal participants. This way, the rules will facilitate payment operations. For better or worse, it seems, that disputed transfers policy contains double meaning for merchants and consumers as well, due to the rules subjective essence.
In a commerce world, in case of contradictory situation, customers tend to weight the says on their behalf. So, merchants should either take pains hardly, owing to prove their point, or to abide by rules.
Other words, sometimes policy doesn’t provide such an appropriate security for merchants as it does for consumers. Thus, customers often indulge their position and compel illegal transfer disputes, it is a so-called friendly-fraud case.
Nevertheless, merchants are obliged to implement the policy, otherwise, they may have substantial impact on their activity and, as a result, on their profit.
After all, clients can have real causes to claim a reversal payment. The reasons may be the following:
- non-delivery – default on the deal obligations;
- quality of goods – product is not in compliance with one, that is described on the site;
- technical reasons – processing operation discrepancies or authorization expiry;
- unforeseen circumstances – some payment process hitches, owing to incorrect charge or wrong amount of the bill;
- fraudulent activity – fraud arisen may disrupt all the operation flow and induce order unauthorization.
However, payment reversal is undesired thing as for merchants and so for honest clients. Thus, to implement all rules in a right manner it is mandatory to check their updates and to follow such already complicated policy. But abiding all details, it is possible to implement an effective business strategy.