Guide to Merchant Chargeback Rights

Chargebacks could seem like an inevitable expense of conducting business, but in many circumstances, they may be avoided and are significantly more harmful than they appear at first appearance. Chargebacks cost merchants about $4 billion each year. It may be a significant burden on your business if left uncontrolled.

Chargebacks are extremely destructive since they are much more costly than the amount of the reversed operation. When overhead, bank fees, and other expenses are included, a chargeback’s real cost can be up to 2.5 times the initial amount.

Fortunately, sellers have rights too. And it is important to know them and be able to protect them.

What are the rights of merchants?

When general-purpose credit cards were first launched a few decades ago, the new payment mechanism had several advantages but also unheard-of difficulties. What would occur, for instance, if a credit card were stolen and used without authorization? Would the cardholder be responsible for the fraudulent charges?

To address these and other concerns, policymakers made efforts to provide consumers with necessary safeguards. The new rules compelled card companies (Mastercard®, Visa®, and so on) to develop their own protections. As a result, a chargeback mechanism was developed to guarantee that cardholders are not held accountable for fraud or other transaction difficulties.

Because of the origins and aims of the claims process, chargeback privileges are frequently geared at protecting cardholders rather than merchants. However, numerous highly useful chargeback rights can significantly influence merchants and help to understand how a merchant can win a chargeback.

1. Card brand policies

Many payment-processing factors, such as disputes and chargebacks, are governed by card brands. The rules are published in full guidelines, and you have the opportunity to evaluate them so that you understand what is expected of you.

Discover® and American Express® make their instructions available through their online merchant portals. You may access the rules by logging into your account. MasterCard and Visa make their paperwork available to the public. Mastercard’s chargeback regulations may be found here, while Visa’s dispute guidance can be found here.

Card companies adjust their regulations on a regular basis as technological capabilities, cardholder expectations, and industry trends grow. Chargeback guidelines are typically released in April and October. Check for policy changes to remain up to speed on rules.


2. Grounds for a transaction dispute

Every chargeback you get has a bad effect on your company. You suffer financial loss, a ruined reputation, and a decline in client satisfaction, among other things. You have a right to understand the cause of all that suffering!

The issuing bank will provide the chargeback a reason code if a transaction is contested. You may learn the causes of contested transactions by looking at reason codes.

Understanding reason codes are crucial if you want to effectively handle the arguments you receive.

3. High-risk clients and banks on a blacklist

Identifying possible dangers and averting future risks are two of the key elements of successful chargeback prevention solutions. Otherwise, you’ll inevitably encounter the same issues again and time again.

As a result, you might need to cease doing business with some individuals because they pose a danger to your company. You should always utilize this chargeback correctly.

Some clients will file chargebacks repeatedly, breaking the law. Additionally, certain issuing banks frequently start invalid disputes. In certain circumstances, blacklisting clients or financial institutions with a high propensity for chargebacks is permissible. You have the option of blocking transactions forever or only until you address the underlying problems.

4. Contest fraudulent chargebacks

You have the right to contest illegal chargebacks, which is perhaps the most significant of all your chargeback merchant rights.

An unneeded or non-compliant payment dispute, or a chargeback that shouldn’t have occurred, is referred to as an invalid chargeback. 

Valid chargebacks come in two different varieties:

  • The cause of the disagreement was untrue or erroneous. A cardholder erroneously utilizes the chargeback procedure, either intentionally or unintentionally, to obtain anything for free: client challenges a purchase since they forgot to stop their subscription; says their product was not delivered; fails to identify a transaction and suspects fraud.
  • The issue did not conform to the card brand’s guidelines. It occurs when the issuer fails to observe or misinterpret one or more card brand rules: submitting a chargeback after the limit; launching a challenge for a value larger than the whole of the first transaction; not getting in touch with the merchant before challenging the transaction; launching a chargeback without making a product return.

It makes no difference what causes the chargeback to be invalid. You can dispute the chargeback if you can make a compelling argument and provide evidence to back it up. 


5. Take a dispute to arbitration

Arbitration is a procedure used by disputing parties to get a decision from a neutral third party. The independent arbitrator has the power to reach a conclusion about the case after considering the facts presented.

When appropriate, a payment disagreement may be resolved through arbitration. The merchant dispute may escalate to arbitration if the intended result cannot be obtained after all chargeback procedure steps have been successfully completed in accordance with card brand laws.

Anytime it is appropriate, you have the authority to use the arbitration procedure. This is a right that you should use carefully, though. All expenses associated with the arbitration shall be borne by the losing party. A disagreement should probably only be taken to arbitration if you have a good chance of prevailing.

6. Seek assistance

You have a lot of rights and duties in relation to chargeback management. Constantly assessing what you ought to and ought not to do is a challenging and time-consuming task.

You don’t have to decide such crucial choices by yourself, which is a good thing. Getting assistance from a chargeback specialist is permitted and recommended.

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