Even the most secure payment options can have some minor problems whenever card not present transactions are involved, so it’s important to understand exactly what a chargeback is all about and how your payment processing system can be bolstered to reduce the risk of chargebacks:
What is a chargeback anyway? Chargebacks aren’t the same thing as returns, where the item was delivered to the customer but the customer wasn’t happy with it. Chargebacks occur when the customer believes a fraudulent charge was made with his or credit card number or if the customer placed an order but the item was never delivered.
Who pays for chargebacks? The businesses often end up paying for chargebacks unless a dispute claim can be filed and proven that the merchant took all possible opportunities to detect fraud and to deliver the item safely.
What happens in the chargeback process? During a chargeback claim, the customer/card issuer files a request through his or her credit card company stating what happened — either a fraudulent purchase was made or the merchant failed to fulfill the order. The credit card company (often called the issuing bank) then investigates the matter and if the claim seems to be in the customer’s favor, the issuing bank will then contact the merchant bank for the funds, which ultimately come from the business. The merchant bank has a certain amount of time to dispute the claim and prove that the original claim was unfounded.
Are chargebacks really that big of a problem? These can definitely be a major problem for a small business! Fraudulent charges are often very large and if the business is required to pay the full amount, it can really be a financial burden. Unfortunately, a lot of responsibility for reducing chargebacks lays on the shoulders of the businesses themselves.
How can merchants reduce chargebacks? There are plenty of secure payment options available for online businesses, including software and services that provide extra credit card screening and order delivery confirmation. Beyond the basic secure payment options, businesses can also place extra restrictions on digital payments to ensure that each transaction is valid.
