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Step 4:

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.

Step 5:

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.

Step 6:

Chargeback is re-presented via acquirer to association.

Step 7:

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.

Step 8:

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.

Step 9:

Cardholder receives notice of initial dispute and final

details of the outcome of the process.

Card-Absent Risk

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


Chargeback Fraud

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.

Concluding Points


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

small businesses.


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



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

wire transfer.


Challenge ALL chargebacks issued against your business.