The decision to sell products online means learning new terminology, processes and technology, plus the upside and downside of running an eCommerce business. One of the first things to develop is an intimate knowledge of the credit card processing system and transaction dispute resolution.
When a brick-and-mortar business accepts credit or debit card payments for its products or servicesa signature is collected from the customer and the customer is ordinarily physically present topresent their card for payment. Having a signature is the merchant’s proofthat the customer authorized payment, that the product or service was received and the customer was initially satisfied with their purchase. But, when an eCommerce business receives payment for an online order, cardholder verification, proof of delivery and customer satisfaction is more difficult because there has been no visual card examination or in-person customer contact with a written signature authorization. These are defined as card-not-present transactions.
Customers who use credit and debit cardsto make online purchaseshave an advantage over other customers because they cancontact the bank who issued their card and ask for their money back when they are unhappy with a purchase, without first contacting the merchant. There are a variety of reasons for transaction disputes and cardholders have 60 days in which to file a dispute.
As soon as a cardholder disputes a transaction, one of two things will happen: the issuing bank will make a retrieval request or initiate a chargeback.
A retrieval request is when an issuing bank contacts a merchant to obtain information about a transaction before initiating a formal chargeback case. This is an issuing bank’s first attemptto settle a dispute and can be accomplished via email orover the phone through a conference call with the customer and the merchant. During this process the merchant is given an opportunity to explain why the transaction is valid.Unfortunately, the retrieval process is not often used because customers are reluctant to confront a merchant over the phone.
When issuing banksinitiate chargebacks, five participants play a role in the resolution process:
Cardholder:A person issued a credit or debit card who has questioned the validity of a transaction to their issuing bank. This is ordinarily the customer who purchased products or services online.
Issuing Bank:The bank, from whom the credit or debit cardused in a transaction was obtained, who initiates chargeback cases and requests provisional creditsfrom merchant banks.
Merchant:The online business from whom a purchase was made by a cardholder.
Merchant’sBank: The bank sponsoring a merchant account that gives a merchant the ability to accept credit and debit card payments.
Payment Processor: A company chosen by a merchant to handle their credit and debit card transactions.
Successfully fighting a chargeback demands knowledge of the rules and regulations set out by card brands, banks and payment processors, plus chargeback reason codes. Each card brand has their own chargeback reason codes, which define the general justification a customer has for filing a chargeback and helps merchants know what documentation is required to validate transactions.
The key to validating transactions and winning or losing chargeback claims depends on having a broad knowledge of online payment processing and the transaction dispute resolution process. To be effective, merchants need to have a specially trained in-house team or to hire an outsourcing agency to handle chargebacks effectively.