A chargeback is a way for consumers to speak up against a product or service they aren’t happy with. They may find the terms and conditions of the offer to be different from what they received. There is a reason why they aren’t happy with the outcome. A chargeback meaning in banking indicates the charge has been reversed and the money given back to the consumer. What does a dispute mean? A dispute is a disagreement that a product or service was rendered within the terms and conditions agreed upon.
A retailer does get a chance to dispute the chargeback. They can provide documentation about why they feel the chargeback isn’t valid. This takes time and research. It also includes submitting information relating to the specifics of the chargeback. For example, if a customer says they didn’t receive an item. The retailer may have a tracking number that verifies where and when it was delivered.
Chargebacks typically reflect poorly on a business because it means the customers aren’t happy with what they received in exchange for their payment. An investigation is conducted with the card issuer being the mediator. The consumer files the dispute, the retailer replies with why they feel it is invalid, and the card issuer makes the final decision.
If they decide in favor of the customer, the reversal of the funds stands. Some merchant account providers also charge the merchant a fee as a way to deter additional chargebacks from other customers. They want the company to have an incentive to make positive changes. If the decision is in favor of the merchant, the customer will be charged the amount again that was previously reversed.
Common Reasons for a Chargeback
Consumers don’t like to feel taken advantage of by retailers. They want their money spent on goods or services they can use. The reasons for chargebacks depend on the type of business and their customer base. There are some common reasons though for chargebacks to be filed. The biggest one is customers not being happy with the product they received.
It may not work like it was advertised and they feel cheated. The product may not last long and they feel it was poorly made. In other situations, the customer says they didn’t receive the item or they weren’t charged the correct amount for their order. There are times when customers forget what they ordered or the business name on a billing statement doesn’t look familiar to them so they fear it is fraudulent.
With services, customers may feel they didn’t get a good return on what they paid for. One of the common reasons for service-related chargebacks is ongoing memberships. While most retailers fully disclose the terms of the membership, few people read them. If the terms are confusing they may feel they didn’t know what they were agreeing to. For example, they may sign up for a free trial and if it isn’t canceled in a given timeframe, they will be charged a monthly amount until they request cancellation.
When consumers don’t pay attention to this, they may be upset when they finally realize they paid for a membership for several months. They want their money back at that point and often file a chargeback about it.
Chargeback Process
The specific chargeback process depends on the card issuer or bank the funds were dispersed from. Most banks and credit card issuers make it easy for consumers to complete a chargeback online. They do encourage them to reach out for support from the company first. If they can’t resolve the issue then they can proceed with the chargeback. Not all card issuers require the customer to reach out to the retailer first.
The chargeback should include the date of the charge, the amount disputed, and the reason it is being disputed. The card issuer will then reverse the charge and give the customer access to those funds again. It can take some time to investigate the situation and they don’t want to tie up those funds for the customer. The card issuer will send the chargeback dispute to the retailer and they have a given amount of time to respond to it.
If they don’t respond by the deadline, the decision is made in favor of the customer. A valid response from the retailer should include a copy of the transaction, why they feel the chargeback is invalid, and any supporting documents. For example, any communication they have had with the customer about the complaint should be shared with the card issuer. Any policies about recurring billing should be shared so the card issuer can review if sufficient details were provided to the consumer about the charges.
If the customer is disputing delivery, verification of tracking details with delivery address and date should be provided. Sometimes a dispute will come in after the timeframe with the retailer has expired. For example, the retailer may have a 90-day policy for returns or exchanges. If the customer files a chargeback after that time has gone by it may be too late. Each chargeback has to be evaluated individually due to the unique reason for the claim and the circumstances involved.
Retailers Should to Pay Attention
Retailers have an obligation to offer the best possible products or services. When consumers aren’t happy with what they paid for, they are going to complain. Some of them will contact the company first. Others will submit a chargeback and the retail doesn’t know they have an issue until they receive that from the card issuer.
Retailers shouldn’t ignore chargebacks, especially if they are above 1% of total sales. High volume of chargebacks mean there is something wrong internally that needs to be evaluated and fixed. This can be unclear terms and conditions for recurring billing items, products customers are disappointed with, or even issues with delivery of items purchased.
High chargebacks can result in a merchant account being shut down. It will take time to get a new account set up. If a retailer has to get a high-risk merchant account set up due to chargebacks, it is going to be more expensive and increase their overhead. Identifying reasons for chargebacks and eliminating recurring issues can help a retailer keep their chargebacks below 1%.
What you Can Do
Payline has partners within the chargeback mitigation industry to help alleviate some of the pains that come with disputes. Talk to one of our payment experts today learn more about solutions like Verifi and Ethoca.
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