Guide to Credit Card Chargeback Merchant Rights
What are credit card chargeback merchant rights, and how can they be protected and exercised?
Chargebacks are a growing problem for merchants, with payment fraud expected to cost online sellers $130 billion1 from 2018 to 2023. Chargebacks not only erode revenues, they require time and resources to dispute, and can affect relationships with customers, banks and card issuers. However, a merchant does have the right to protect themselves and their business from fraudulent chargeback activity.
Related reading: The Complete Guide to Visa’s New Chargeback Limits
Companies that fight chargeback fraud can reduce overall instances of fraud, and recuperate a portion of their losses. To do that, they must understand and exercise their credit card chargeback merchant rights.
In a dispute, credit card chargeback merchant rights and protections are structured into the process, governing terms of conduct throughout the chargeback process.
Credit Card Chargeback Merchant Protections:
When filing a chargeback, a customer must describe the reason for the action; whether it is ‘item not received’, ‘charge not recognized’, or another basis. Knowing the customer’s reason for filing a chargeback gives a merchant valuable insight as to the cause of the chargeback, and can help determine whether or not investing in a dispute will be worthwhile. It can also help a merchant identify recurring chargeback triggers, alerting them to a potential issue that needs to be addressed.
Purchase price only.
Chargebacks can be issued for the full amount of a transaction, or for a partial amount, but they cannot exceed that amount. This protects the merchant from suffering losses in excess of the original transaction amount. The only exception to this is if a merchant accepts transactions in foreign currency, in which case a chargeback could be adjusted for changes in the exchange rate between the transaction and the chargeback filing.
Returns for late delivery.
If a product is delivered past the agreed-upon timeline, the customer must attempt to return the product before a chargeback is filed. This protects the merchant from losses as a result of errors on the part of delivery contractors or unplanned emergencies.
15-day waiting period on returns.
When goods are returned, there is a 15-day waiting period before a chargeback can be filed. This gives the merchant a window of time in which to file a refund, before a chargeback is processed.
Perhaps the most important credit card chargeback merchant right is the right of representment: the ability to dispute a chargeback by providing allowable compelling evidence to the bank or card issuer. However, this requires an investment of time and resources by the merchant, and it is not guaranteed to be effective. This may be why only 53% of chargebacks were disputed by merchants in 20162; with a merchant win rate of approximately 41%.
It is important for a merchant to understand their rights of representment, and have a process in place to determine when it makes sense to dispute a chargeback – setting a minimum transaction value that would be worthwhile to try to recover. Without this minimum value, disputing a chargeback may require a higher investment of resources than even a successful dispute can recover.
Related reading: 3 Ecommerce Fraud Prevention Best Practices for Retailers
Should a merchant lose a chargeback dispute, there is a final recourse: chargeback arbitration. When an initial representment decision is made in favor of the customer, the bank files a pre-arbitration chargeback to the merchant, who can then either accept the decision or appeal to an arbitrator at the card network or financial institution to review the case.
Arbitration processes vary depending on the issuer, but in general they extend the dispute process and require further investment of resources. As such, it is often reserved for high-value transactions to offset additional costs.
While there are protections in place for merchants, the chargeback system is not shaped to protect those rights. Credit card chargeback merchant rights can be breached in a number of ways, including:
Common Chargeback Merchant Rights Violations:
The way that the chargeback process is structured means that a merchant is unaware a chargeback is filed until after the funds have been removed from their account. This can cause problems for a business with restricted margins, and make a merchant unwilling to invest additional resources in representment.
Card issuers view cardholders as their primary customers, not merchants. Their responsibility for customer satisfaction makes it important to resolve disputes quickly, leaning in favor of the customer instead of the merchant.
Financial institutions are bound by similar constraints, viewing account holders as customers as opposed to merchants. A bank’s interest lies in keeping customers – account holders – happy, leaving little incentive for devoting time or resources to the representment process or finding a result in favor of a merchant over a customer.
Without mitigation, chargebacks can significantly impact a retailer’s business, eroding revenues and affecting the resources that can be devoted to taking care of genuine customers. However, even with protections in place, credit card chargeback merchant rights are damaged by the structure of the electronics payment process, which is naturally in favor of the customer – even if that customer is committing fraud.
The best solution is to prevent chargebacks altogether, rather than fighting them after they occur. A pre-emptive fraud solution that can identify fraudulent transactions at critical decision points, including the point of sale, can help a merchant by preventing fraud before a sale takes place. Precognitive’s fraud prevention platform combines device intelligence and behavioral analytics to help retailers identify potential fraud and stop fraudulent transactions – without affecting authentic customers. Contact Precognitive today to learn more about how our solution can help retailers minimize fraud, and improve returns.