Chargebacks occur when a customer contacts his or her credit card issuing bank to initiate a dispute on a purchase they made with their credit card. Ideally, you would prefer the cardholder contact you directly by calling the number you provided on your billing descriptor or customer service page on your website. When a customer contacts you directly for their money back, this is called a refund. You refund the money instead of the bank having to charge it back. However, this is not always the case.
To be a successful e-commerce merchant, it is your responsibility to ensure that the transaction goes smoothly and the customer is happy. A failure somewhere within the fulfillment process—including the level of customer service—may lead to a chargeback.
The Process of Processing Chargebacks
Whether you are a storefront merchant or an e-commerce merchant, you may be unfamiliar with the protocols and guidelines for chargebacks. To help you understand, I have provided below a list Instabill uses as well as Visa and MasterCard.
- Your customer disputes a transaction by contacting his or her credit card issuing bank.
- The issuing bank will determine whether the reasoning for the chargeback is valid. If not, the bank will decline the chargeback and the customer is held responsible for the purchase. At this point, the issuing bank may also notify your acquiring bank as a suspicious fraud transaction. You will have the opportunity to refund the purchase to avoid a possible chargeback.
- If valid, your customer will receive a provisional credit while the issuing bank initiates the chargeback process and obtains funds from your acquiring bank.
- Your acquiring bank will research the validity of your customer’s chargeback. If your bank determines the chargeback is invalid, it will decline the chargeback and notify your customer’s issuing bank.
- However, if your acquiring bank believes that the chargeback is valid, it will deduct the amount from your merchant account and notify Instabill—or whichever merchant account provider you use—of your chargeback. Meanwhile, you incur a chargeback processing fee from your bank and Instabill notifies you of your chargeback.
- From the time Instabill notifies you of the chargeback, you have five days to provide documentation for the chargeback retrieval—this means you are disputing the chargeback to reverse it. If you win your retrieval, the credit card company will decline the chargeback, you receive your originally approved funds from the transaction, and you maintain a low chargeback ratio.
- If you lose the chargeback retrieval, the process ends, you lose funds, and your chargeback ratio increases.
As you can see with processing chargebacks, there are multiple steps involving multiple parties and each step requires the responsible party to dedicate a certain amount of time to resolve the issue. For more information on chargebacks, chargeback prevention, and fraud prevention, be sure to visit www.Instabill.org.
