Understand them better so you can avoid them where possible
Chargebacks are an inevitable part of doing business when you accept payments by card. There are different types – legitimate chargebacks and illegal ones resulting from fraudulent activity.
By understanding the rights, responsibilities and remedies associated with chargebacks, you’ll be able to minimise your risks and help avoid unwinnable, or costly, disputes. See Best Practices below.
What is a chargeback exactly?
Chargebacks begin their journey when a cardholder disputes a charge on their Bank’s card statement, and the Bank lodges the Chargeback through the Card Scheme. At this point, the cardholder is either out of pocket until the Bank investigates and rules on it – or the Bank gives ‘back’ the ‘charge’ while they investigate, depending on the Bank's policy. This is done to protect the consumer and give them confidence in the system.
It is not a refund from you, the Merchant, directly to the consumer – rather, it is about their transaction with you via your Merchant facility where the amount will be debited from your account.
Example: Low Level Risk
Gopu saw an ad for a $68 t-shirt and entered the store, picked out the t-shirt and tapped his card on the terminal to pay.
However, later that month, he noticed that his credit card statement shows the price he was charged to be $98 so he contacts his bank to dispute the extra $30 he’s been charged. The merchant responds to the chargeback by advising that it was simply human error and agrees to accept the chargeback and return the extra $30 to Gopu.
Example: High Level Risk
Nerida purchases a set of wireless headphones from Audio Y online. Audio Y receives the order, sends Nerida an email confirmation with purchase details and tracking number for the delivery and dispatches the goods.
The goods are delivered however, a few weeks later and without notice, Audio Y receives a chargeback for 'Goods/Services not as Described'. Nerida also claimed that she was sent the wrong item and that she attempted to resolve the issue with the Merchant. Audio Y has no record of this, but if they don’t respond in time and with evidence to show that the correct item was dispatched, they may lose the chargeback, the goods, and also incur the chargeback fees.
What about the cost of chargebacks?
All the rules, regulations and timeframes are determined by the card schemes, typically Visa, Mastercard, UnionPay and the EFTPOS providers, including but not limited to credit card, debit card and prepaid card – and Till is bound by them. So, when a chargeback occurs, you will be notified, and the chargeback will be debited from your merchant account on that day.
But Till’s AUD$25 admin fee per chargeback will appear on your monthly invoice. Note that if you lose a chargeback dispute at arbitration the schemes will charge you USD$500.
What are the timeframes?
Chargebacks can cost you time as well as money, so it is in your interest to act swiftly when one occurs. In most cases, a cardholder can contact their bank and request their money back within 90 to 120 days from the date of the disputed transaction, depending on the reason code.
These timeframes are controlled by the schemes, not Till. If you dispute a chargeback, you’ll need to provide detailed documentation – and then the cardholder’s Bank has 30 to 45 days to either accept your evidence or continue the dispute.
6 Stages of a Chargeback
Stage 1 - Cardholder disputes a card transaction with their Issuing Bank
Stage 2 - The Issuing Bank logdes the Chargeback with the Card Scheme if valid
Stage 3 - The Card Scheme debits till while the dispute is investigated
Stage 4 - Till notifies you immediately and debits your account on that day
Stage 5 - You can either accept the Chargeback or defend it with precise, documented evidence
Stage 6.1 - If the evidence is insufficient or insufficiently strong or the cardholder is not to blame, the debit will remain
Stage 6.2 - If your evidence is accepted, the debit will be reversed and you will not be out of pocket
To dispute, or not to dispute?
That is the question.
Depending on the circumstances, value and available documentation, you will need to consider carefully whether you have enough evidence to dispute and if it’s worth disputing. Talk to Till for assistance.
There are 7 most common Dispute types:
1. Duplicate Charge
2. Paid By Other Means
3. Goods or Services Not Received
4. Cancelled Merchandise or Services
5. Goods or Services Not as Described or Defective
6. Incorrect Amount
7. Unauthorised MOTO Transaction
The best practice is to use Best Practice
Prevention is always better than cure. By implementing the following Best Practices, you will reduce your exposure to fraud and avoid the drain on resources caused by chargeback disputes. Note that Till can help you further, including free Fact Sheets you can download below.
Till’s top tips to prevent fraud and protect your business
Refund with care
Only refund onto the original card that was used for the transaction. Refunding any other way exposes you to a double loss.
Cancellation & Returns policy
Be sure customers are completely aware of the Terms and Conditions and that they ‘Accept’ them. No exceptions.
Don’t split larger transactions
Transactions up to $200 can be tapped and don’t require a pin, so do not bypass this security measure by breaking a large transaction into smaller, multiple amounts.
Be EFTPOS aware
Don’t leave your terminal unattended. Do not hand it over to a customer for any length of time (and watch the activity if they are inserting their card).
Double-check large, new transactions
Large, juicy sales can be too good to be true, especially if it’s a new or unknown customer. Always verify the legitimacy of the transaction first. Take the time to double-check and don’t be distracted.
Shipping means signing
If you ship, then it’s wise to have the goods signed for – by the cardholder. Implement a policy where they must show both their card and ID before handing over at the point of delivery.
Take special care taking orders over the phone
Mail Order Telephone Orders (MOTO) are full of traps you need to be aware of. This is a big risk with e-commerce too so please request the confidential information below, so you know the dangers.
Don’t risk 3rd Party transfers
Never take a payment and then use part of it to pay someone else, no matter how convincing the request may sound.
Use extra security with Accommodation
Try Pre-Authorisation to take a down-payment, then take a ‘card-present’ completion at check-in. Be sure to get ID from a guest who booked via a 3rd party site – and have them sign a check-in and check-out form. Clearly document any additional charges incurred on their invoice.
Be prepared – keep the paperwork
Keep any tax invoices or EFTPOS receipts for at least 18 months. If you’re using Till’s intuitive dashboard, you can search transaction history by name, date, and terminal and print out the data.
Run an education programme
Be diligent and vigilant. Train your staff in best practices and teach them how to recognise potential fraud. Always check in with Till and stay up to date as unscrupulous ‘customers’ are forever finding new ways to bypass security measures.
Free Fact Sheets
Till has developed some easy-to-understand Fact Sheets that will help you mitigate the risks of Chargebacks. They’re full of Best Practice ideas that you can share with your staff.
Mail Order Telephone Order (MOTO)
These transactions carry higher risk of fraud, and you're 100% responsible, so download Till’s
Merchant Guide to MOTO.
Download Till’s How to Spot a Fraudster and learn the tricks criminals use to take advantage of your trusting nature.Download
Hospitality & Accommodation
This sector has seen increased levels of fraudulent activity, especially during the pandemic. Download Till’s
Staying Safe from Fraud.
Handy Guide to Disputes
If you choose to dispute a Chargeback, you’ll need evidence, so download
Till’s Handy Guide: Disputes, Definitions, and Documents.