S P R I N G
F E A T U R E
If chargeback is eligible and appropriate, card associa-
tion forwards chargeback to merchant’s acquiring bank, debits
merchant’s account for the value of chargeback, and places
funds in escrow until chargeback is fully adjudicated. Ac-
quirer receives chargeback and forwards notice to merchant.
Merchant receives chargeback notice from acquirer,
completes paperwork detailing transaction and affirming their
right to charge card (challenge), and forwards that information
back to acquirer.
Chargeback is re-presented via acquirer to association.
Association screens re-presentment for eligibility
and compliance with chargeback rules, and if appropriate,
forwards re-presentment to card issuer. At the same time,
association releases funds from escrow and deposits back to
merchant’s account, notifying merchant and acquirer.
Card issuer receives re-presented item and if appro-
priate, re-posts debit to cardholder’s account. If card issuer
and cardholder disagree with adjudication of dispute, they
may re-submit the chargeback for another round of reviews.
Cardholder receives notice of initial dispute and final
details of the outcome of the process.
Most merchants encounter chargebacks on card not present
transactions. Many of these situations could be easily avoided
by the “know your customer” rule of thumb. Merchants’
chargeback rights are also greatly enhanced with the use of
Address Verification Service (AVS) and Card Verification
Value 2 (CVV2). A merchant can successfully represent a
chargeback if they received a “Yes” response on the AVS
and/or the CVV2 keys, as long as they have signed proof of
delivery to that shipping address. Without either or both of
those affirmative matches, merchants are hard pressed to win
card-absent disputes. The best advice is to be very sure you
are dealing with honest businesses on ALL card-absent trans-
actions. Following this simple rule, and avoiding most foreign
sales, would save merchants millions of dollars in chargebacks
Many business owners erroneously view chargeback losses
as a necessary evil associated with accepting credit cards.
Failure to challenge a chargeback results in the economic loss
of that transaction and any ancillary services, as well as the
chargeback fees charged by the associations and passed on to
the merchant via the processor, which can range from $10 to
$100 each. Worse yet, if a merchant’s chargeback rate exceeds
a minimum threshold, typically 1% of total sales, then they
become subject to heavy fines from the processors/associa-
tions. In the most extreme cases, merchants lose their right to
accept credit/debit cards completely, resulting in failure of the
Criminals know the chargeback rules, and take obvious
advantage of the system. Scammers make legitimate purchas-
es every day, but then claim the transaction was not autho-
rized. Another scam method is to pretend an item purchased
never arrived, or arrived in a damaged state. Obviously,
the merchant also bears risk when accepting stolen cards for
payment. All of these instances constitute classic Chargeback
Nationally, merchants challenge less than 30% of all
chargebacks. However, when contested, merchants win nearly
50% of all chargebacks. In contrast, cardholders who initiate
and win chargebacks are 10 times more likely to do it again.
In 2013, of the roughly $2.5 trillion in Visa transactions that
occurred, cardholders disputed nearly $800 million. In total
for Visa alone, chargebacks cost businesses an estimated $590
million in 2013. The lesson here is clear, businesses need to
fight back and challenge ALL disputes.
Merchants are ultimately responsible financially for most
chargebacks, even if they have knowingly done nothing to
cause the chargeback.
The likelihood of a cardholder disputing a legitimate
transaction is higher than ever, and cardholder chargeback
rights are significant.
Chargeback Fraud is becoming a major financial risk to
If a merchant receives a chargeback and cannot or refuses
to fund it, they will be in default and in severe jeopardy of
losing their business.
Know your customer, especially if the card is not present
at the time of the transaction. If the client is new, non-
local, or worse yet domiciled in a foreign country, BEWARE
and USE EXTREME CAUTION.
If a client or prospective client pays via credit/debit card
and asks you to wire funds to them for shipping, terminate
the transaction and call law enforcement.
Never ship goods paid via card not present credit/debit
card until you have completed EXHAUSTIVE due dili-
gence on that client/prospect.
If doubts about the legitimacy of a client or prospect exist,
and you still want to proceed with a transaction, insist on a
Challenge ALL chargebacks issued against your business.