How to Fight Chargebacks from Unscrupulous Customers

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A chargeback is a financial maneuver that a bank uses when they need to “reverse a credit card payment.” In accounting lingo, a chargeback is a debit to an account that had already received a credit for the same item. The following article explains what a chargeback is and how to fight chargebacks impacting your business.

Chargeback: A Historical Perspective

In the early 1970s, the concept and of bank credit cards remained in its infancy. These financial tools we depend on so readily these days, had not yet gained full acceptance due to unchecked consumer fear. These fears included the consequences of losing or have a credit card stolen; while other consumers were uneasy when they realized how easy it would be for merchants to misuse the process for their personal gain.

Just a few years later, the federal government passed the Fair Credit Billing Act in 1974, an act that introduced a new concept known as the chargeback. The chargeback, as a financial tool, was initially designed to offer a credit card users a built-in safety net. Essentially, the chargeback was created to mitigate consumers’ credit card fears.

How Chargebacks Benefit Consumers

Chargebacks were created as a safety catch-all; to assure consumers that financial markets were safe to engage in. Additionally, Chargebacks, by their very nature deter merchants who might give into temptation to sell sub-par services to increase their profits. A cardholder, armed with a chargeback, now had the ability to challenge the quality of the services that were delivered ‘not as promised.’

Chargebacks are also effectual in protecting credit card users from the consequences of criminal fraud. In a world where database breaches are front-page news all too often, consumers have become vigilant when looking for unauthorized transactions on their monthly statement. The chargeback is a great way for victims to recover their money.

However, it is critical to note that a chargeback can be authorized without an investigation. In other words, a cardholder can request a refund directly from the bank, without even notifying the merchant. The bank could, given its authority, void the credit card transaction which would a) remove the money previously given to a merchant account and b) cause the bank to issue a large fee against the merchant. If the credit card transaction in question is deemed egregious, a merchant may lose the use of the processing system.

Chargeback Situations

Consumers who use credit cards on a daily basis do not even recognize the chargeback protection the card provides. Consumers who are the victims of financial fraud, need to file a chargeback to challenge this fraudulent charge. In this situation, credit cardholders should contact the credit card issuer immediately. This allows for the fraud victim to recover pilfered funds and to thwart additional financial losses. Remember though, that the situation noted-above is the only situation where a credit cardholder should reach out to the bank first.

For all other problematic transactions, a cardholder should contact the merchant directly.  In these scenarios, the objective is to resolve the questionable charge without the bank getting involved. There are instances where the apparent mischarge is merely an oversight or an accident. Often a consumer innocently forgets about buying the item in question. In these situations, a resolution is simple and fast. In fact, a refund returns the money faster that if they begin the chargeback process.

Note…

Consumers should know, however, that if they are simply dissatisfied with a purchase, and choose to file a chargeback for the item instead of asking for a refund, they are ‘technically’ committing cyber shoplifting. Cyber shoplifting occurs because when a consumer files a chargeback (ands succeeds), they get to keep the item and receive a refund of the cost of the item. The merchant actually pays twice for the same item or service.  A dissatisfied customer should rectify this situation by requesting a refund, NOT a chargeback.

Merchants, read on to learn how to fight chargebacks under these circumstances.

What is Chargeback Fraud

Chargeback fraud, also known as ‘friendly fraud,’ is the way in which consumers can potentiality abuse the charge card process by claiming their valid purchase was fraudulent. Consumer should recognize the seriousness of this action. These are the situations where a merchant must know how to fight chargebacks.

The current dilemma facing merchants whose businesses rely on credit card payments, is that while chargebacks were initially designed to protect consumers, the chargeback process has not kept pace with the lightning speed changes in financial technologies. The dilemma is the result of an antiquated credit card process (originally created with the best intentions), that is now being used to wage financial warfare against unsuspecting merchants.

Chargeback abuse can occur to  avoid a restocking fee, or buyer’s remorse. Still other chargeback abusers prefer a chargeback when the merchant’s return process appears complicated or when the consumer fails to request a return within the disclosed time limit.

Don’t forget the chargeback abusers who file the chargeback to generate a few extra bucks .Chargebacks occur simply because the cardholder is looking to make a few extra bucks.

The Merchant Take-Away

Merchants that hit the proverbial chargeback abuse wall, typically react with frustration, because they have little opportunity to challenge the chargeback filings. The reality is, chargebacks are a direct threat to a business’ success.  Some merchants don’t even know the chargeback is happening until after the monies have been transferred.

Merchants operating online typically butt up against chargebacks more often than brick-and-mortar merchants. However, it is noted that any business that accepts credit cards will be vulnerable to friendly fraud.

The following advice is a great way to find out how to fight chargebacks. Merchants must devise and implement a risk management tactic to mitigate potential chargeback abuses. The following strategies help discover how to fight chargebacks from a more comprehensive perspective.

  • First, it is critical for a merchant to take care of their customers. Take the time to understand the reason for the chargeback request. Reach out to your customer to see if you can intervene by offering another solution. If you are up against a chargeback you decide to fight, gather the detailed documentation needed to win a dispute.

 

  • Merchants who use credit cards remain open to the chargeback risk. Your best defense as a merchant is to follow the rules, be fair and operate with transparency. Operating with integrity always benefits the merchant.

If a merchant is to fight chargebacks effectively, they must proactively and routinely review their records. If the methods to fight chargebacks seems daunting, consider a firm that specializes in these matters.  The cost of their service may seem reasonable if the chargebacks at against your company keeps mounting.