Why am I seeing a Charge Back amount on my merchant statement?
As a retailer you may sometimes see significant amounts of money called chargebacks, being deducted from your account. It can be disconcerting to suddenly see amounts being deducted from your balance, often with no explanation from your merchant services provider.
In this article we will explain what a chargeback is, and what the most common reasons for a charge back are.
What is a chargeback?
A “Chargeback” is the return of funds to a customer. Any customer who has used a card to pay for goods or services from your business, can use the charge back system.
There are many reasons why they would do this:
1. Fraudulent use of a customers card.
Perhaps the most common reason is to dispute a card transaction that the cardholder did not personally make. Fraudulent use of a card in this way, can lead the cardholder to initiate a refund for that purchase.
2. Break down of communication with the your business or staff:
Another reason could be failure to negotiate a refund from you, the merchant. If you have refused a customer a refund, or communication has broken down, the cardholder may simply opt to request a chargeback.
3. Suspect use of the chargeback system by the cardholder themselves.
In theory it Is possible for a cardholder to purchase goods and then claim a chargeback. Of course, there is a system in place for you to counter this by proving the validity of the sale. The only issues that may arise are if you have not spotted the chargeback in time, or if you fail to provide satisfactory evidence that the chargeback is unwarranted.
How does a chargeback get raised?
The cardholder raises the issue with their bank, who then contact your bank for the return of the money.
Is a chargeback the same as a refund?
Chargebacks differ from refunds in the sense that, instead of contacting you for a refund, the customer bypasses both the yourself and the merchant services company, and asks their bank to forcibly remove funds from your account. If your customers bank approves the request, then full amount of the transaction will be moved from the your bank account and returned to the customer.
How much will a chargeback cost me as a retailer?
Chargebacks are a growing threat to both merchant services providers, and you the retailer. A chargeback costs in terms of both merchandise and revenue.
Imagine for a moment, that a fraudster comes into your store, or visits your website, and uses a stolen card to spend £500 on goods. The card holder sees the transaction and contacts their bank. The bank agree that the transaction is suspect, and agree to the chargeback. In this instance £500 will be deducted from your account and returned to the customer. Therefore a chargeback will mean you have lost the stock, AND the revenue, plus any fee’s.
What are the chargeback fees that I may be liable for?
For every chargeback you may receive, you are also hit with a non-refundable chargeback fee from the merchant’s acquiring bank. Chargeback fees range in every situation. The amount charges often depends on the goods or services that were offered. The acquiring bank has a voice in determining the amount, as does the processor. The fees can range between £20 and £50. If your business is considered to be a ‘high risk’ merchant, you may be at risk of higher fees.
How can I challenge a chargeback?
You can challenge a dispute by witting a letter to your bank, who will then forward it to the challenging bank. This letter should contain the reasoning why you want to challenge the fee, and any evidence that there may be.
If you lose the dispute, then you may still be able to arbitrate the dispute before a neutral third party. In any case, the fee you will have paid is non refundable, even if the chargeback is deemed as being unwarranted.
Who is involved with a chargeback?
1. The cardholder
The card holder will initiate the process by claiming the money back through their bank
2. Your business (the merchant), who is responsible for sales of items or services.
3. The acquiring bank who handle your merchant services. Worldpay are an example of an acquiring bank.
4. The issuing bank, (where the card holder has their account), who will help the cardholder with their payments.
5. Visa, Mastercard and the other card networks are also involved at various points of the process, depending on which card was used.
How long do I have to respond and challenge a chargeback?
Merchants generally have 45 days to dispute a chargeback once they receive it. It is best to do so as soon as you see the chargeback, as the reversal process is not straight forward. In the case of a chargeback, the cardholder really holds the power. In most cases you will be asked to provide evidence to back your counter claim. It would make sense to pull in as much information as you can before you start the process.
What is my first step?
Why not drop us a line for a no obligation chat about the situation. We will be happy to provide you with the relevant resources to start disputing a chargeback.