Chargeback is the amount that may be debited from the merchant’s account in case of a genuine complaint from the customer, for an instance, an actual duplicate billing. Following this, a customer may raise a dispute against the businessperson for the same. Nevertheless, the online businesses can safeguard themselves from the financial loss from the cases, which are not genuine and/or repetitive faulty transactions.
Despite many merchants considering chargeback as a part and parcel of their business, the fact is that it can actually be avoided with some preventive measures. With an objective to fairly balance the provision of justice, RBI has a set procedure for the payment gateways to follow before debiting the amount (if actually it has to be) on an end customer’s request
RBI’s ombudsman scheme rules out that the customer requires to file a complaint with the service providing company/digital payments company itself and wait for 30 days for the same to respond with an action. In case the service provider does not address the issue of the complainant positively, with a solution, one can approach the ombudsman meant for digital payments within the jurisdiction where the service provider’s office is located. This gives merchant enough time to rule out the actual reason behind chargeback application and take action based on the same.
Know more about Chargebacks
A merchant must know that there are four separate “reason codes” and the customer needs to state their credit card issuer one of them while requesting for a chargeback. Hence, without one of these reasons stated to the credit card issuer, the customer cannot get the processing of chargeback initiated:
- Clerical chargebacks – These chargebacks occur when customer raises the issue such as duplicate billing, an incorrect amount billed, or when a promised refund did not get issued.
- Technical chargebacks – Such a chargeback is raised by the customer for technical reasons such as expired card authorization, non-sufficient funds, or bank processing errors.
- Quality related chargebacks – Such chargebacks are issued when customers claim to have never received the item(s) or received them either in a defective condition or later than promised to them.
- Fraud-related chargebacks – These chargebacks are inflicted when the customer gets charged without his/her knowledge and shows suspicion of identity theft and/or when it is charged without their consent.
- Chargeback fraud – This is also popularly known as friendly fraud. It occurs when a customer makes an online shopping purchase with their own credit card and following the receipt of the good, requests a chargeback. In case it gets approved, the customer receives the entire amount as a refund.
After going through the “reason codes”, further you can take a look at “How to avoid credit card chargeback as a merchant?”
Below are the apt ways to avoid the same and protect your online business from frequent potential losses along with the reputation you have worked hard for-
By following processor protocol
The credit card processor may need to give permission to process the transactions made over phone or on the website of the merchant (online transactions). For the approval of the same, the merchant may have to get additional information such as the customer’s IP address, digital signature or social media profiles. Furthermore, some processors also require additional identity confirmation through services like verified by Visa or MasterCard SecureCode, which requires customers to authorize credit or debit card payments online. Additionally, a proof of delivery after the shipping of items may be required.
By using a clear payment descriptor
Unclear payment descriptors are one of the main reasons for majority of disputes in a firm. The payment descriptor is the merchant name as well as other identifying details that appear on the customer’s credit card statement when they make a purchase from the merchant. So if the merchant lists a different name than what the customer may recognize it may lead to customer not being able to recall the purchase later. For example, the name of the parent company instead of your store’s specific name can make the customer go slightly lost. Hence, the descriptor must reflect what the consumer can easily recognize.
By getting it in Writing
One of the most important things for a merchant to keep her/his business safeguarded is to get customers to sign a contract with the mentioning of specific services that the company will provide. This aids the merchant by avoiding any misconceptions thereafter. There can be multiple options for returning the signed contract. These options include fax, email, electronic signatures online, fingerprint recognition via a smartphone application, and so on.
By sorting Customer Issue promptly
There is an advantage with the chargeback notification reaching the merchant since when a customer raises a charge, it approaches the merchant in the first place. This can be taken optimistically, since it brings an opportunity to address chargebacks instantly with the customer as and when they appear. Hence, if a customer expresses dissatisfaction, she/he can get in touch with the person and in case it gets resolved there, it need not be taken at a higher level.
By gaining the knowledge about fraud
Knowledge about the signs of a potentially fraud case can drastically help a merchant avoid a fraud by raising a warning of a possible threat ahead. This can be attained with the chargeback protocol that helps the merchant detect signs of a possible fraud. In case of the suspicious details, like the credit card security code being incorrect or a discrepancy between the billing and shipping addresses, the merchant can inquire to ensure the legitimacy of the customer. This way the merchant can either confirm or deny the sales depending on the status of customer’s genuineness. It can be done in various ways, for an instance, getting the information about the customer on the social platforms, making a call to the customer who ordered for the said service(s)/product(s), etc.
By training the employees
Training the employees is one of the best ways to avoid a chargeback. This can be done for both kinds of transactions where the cardholder presents the card for payment and also for the website transactions. By teaching the employees about fraud and chargeback prevention techniques, the aim of avoiding chargebacks can be achieved. The transactions, for example, can be teaching fraud and chargeback prevention techniques for looking for suspicious transactions, verifying signatures in card-present transactions, and obtaining signatures on contracts and sales orders when appropriate.
By maintaining good records
Maintaining records of customer’s credit card transaction details like dates of transactions, amounts and authorization information help to fight a chargeback in case of any. The records help merchant in case of an unfair practice where a customer may try to take advantage of the chargeback system or may have forgotten the purchase.