Chargebacks are a bit of a dark art — or least they have that reputation. There’s the terminology, the timelines and the behind-the-scenes back and forth between acquirers and issuers. It can be confusing, so we thought it would be worthwhile outlining the basics.
First, let's establish what we are talking about. Chargebacks, what are they?
A chargeback is when a previously-processed card sale is returned to you. The cardholder’s bank or provider (the issuer) returns the transaction (i.e. charges it back) to your bank or provider (the acquirer).
If an issuer charges a transaction back, they must use a card scheme-specific numeric code that defines the reason the transaction is being disputed. This is known as a reason code. The reasons range from fraud to non-receipt of goods or services, processing errors, authorisation and so on. The real, underlying reason for chargebacks, however, has to do with the push and pull of payments.
The push and pull of payments
Bank transfers are generally ‘push’ payments. You provide your customer with your account details for them to push the money to you. Cash works in a similar way. It is a person-to-person push payment. With push payments, as the customer has effected the payment themselves, they have fewer dispute rights.
On the other hand, card payments are ‘pull’ payments. The customer is providing you with their card details for you to pull the money from their account. Due to consumer protection regulations in many countries, consumers have the right to pull the money back under certain circumstances. Chargebacks are based on these types of consumer protection regulations.
Prevention is better than cure
No business can ever wholly eliminate chargebacks. There are too many moving parts. You, your customer or their issuer can make a mistake. However, chargebacks are annoying for your customers and an administrative hassle for you. One of the best ways to avoid chargebacks is to prevent them from happening in the first place.
Good business practices may also prevent complaints escalating into chargebacks. Communicate terms and conditions clearly. This includes return, refund and cancellation policies. Make it easy for customers to resolve queries with you in the first instance by providing contact details. And include frequently asked questions on your website.
If you send goods out to customers, ship goods before charging the customer’s card.
When it comes to using your card terminal, ensure that everyone who accepts payment from customers knows how to do this and how the terminal works. This will help prevent avoidable errors, such as failing to authorise payments, ask for a signature, or processing transactions more than once.
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Whatever your business needs today or tomorrow, PXP Financials’ innovative payment platform will support your business growth with all the payment services you will ever need from one source, wherever your business takes you.