Having the ability to process credit card payments is vital for any successful business. We live in an age of “plastic” – buyers want to have the convenience of paying for purchases with their credit cards. If you cannot process credit card payments, you could be losing out on a large customer base.
However, accepting credit card payments is not without risk. One of the biggest risks of credit card payments for the merchant is a chargeback. In case you ever face a chargeback, you need to understand the chargeback process.
A chargeback occurs when a customer disputes a charge to their credit card. If the issuing bank decides that the customer has a valid claim, they will issue a refund to the card. The issuing bank will then file the chargeback through the acquiring network. The money will be removed from your account and you will receive notice of the chargeback. You can, of course, appeal the chargeback but in today’s world of online and telephone payments, it can be difficult to win the appeal.
The reason it is harder to win a chargeback appeal for these kinds of payments is because they are often made without the card being physically present. For instance, when a customer inputs his/her credit card information into your website for a purchase, the actual card is never exchanged. It can be difficult for you, the merchant, to know when an unauthorized person is using a credit card because the transaction takes place online. If the transaction is disputed by the cardholder, you have to prove that the purchase was authorized – a difficult task when you never saw the physical credit card.
The cycle of a chargeback includes:
- Cardholder contacts issuing bank for a chargeback
- Issuing bank contacts acquiring bank
- Acquiring bank removes the money from your account and sends you notification of the chargeback
- You get the notice and can either accept the chargeback or dispute it
- If you dispute the chargeback, the acquiring bank will review the dispute
- If your dispute is found to be valid, the issuing bank is notified
- The issuing bank will either re-charge the credit card or submit the dispute for arbitration
- The customer is notified of the decision and he/she can file another chargeback to dispute the charge again, and the process repeats.