Arguments with customers are no fun. This is especially true when it comes to chargebacks. Below, we'll walk through the basics of the chargebacks process, what usually causes them, andthe steps you can take to prevent chargebacks from happening.
What Is a Chargeback?
A chargeback happens when a customer arguments a charge from your business and asks thecard issuer to reverse it. Credit card chargebacks are meant to protect people (who use a product or service) from unauthorized transactions but they can mean big headaches for businesses.
When a chargeback happens, the argumentd money is held from the business until the cardissuer works things out and decides what to do. Unfortunately, this can be a complicated andtime-using/eating/drinking process involving a lot of paperwork and (paperwork that proves or supports something). If you sell with Square, you can rest a little easier about chargebacks. Wecover all (able to be picked/able to participate) chargebacks, up to $250 a month--free. Learnmore about Square's Chargeback Protection.
Does Square Have Chargeback Fees?
No, Square doesn't have any chargeback fees. Interestingly, every other payment processor haseither chargeback fees, hold processing fees, or both. Square doesn't charge either.
In fact, most other major payment processors charge a non-refundable fee ranging from $15 to$25 the moment a customer starts the chargeback, (without any concern about/having nothing to do with) result. Also, if it's proven that the (person who sells things) was at fault, manycompanies will also charge the (person who sells things) its standard payment processing fees. Square is the only major payment provider that doesn't charge chargeback fees--ever. And if youlose your chargeback, we won't ask you to refund our standard processing fees for thetransaction.
The Chargeback Process Explained
Generally speaking, the chargeback process can differ between payment processors and itusually/(in the past) takes between 60-90 days to resolve. Here at Square we use our private (or unique) machine learning models to (describe a possible future event), and stop, manyfake/illegal (because of lying and stealing) transactions before they happen. We also keep youinformed of the status of your chargeback via convenient in-app alerts in your SquareDashboard.
For educational purposes, here is a summary of the general chargeback process with most majorprocessors:
Step 1: An (instance of buying something for money) happens - All chargebacks start with acustomer making an (instance of buying something for money), either in-person, in-app, oronline.
Step 2: Customer starts the chargeback - After the customer reviews their credit card statementat the end of the month, they may (see/hear/become aware of) a charge they didn't approve. Thecustomer then contacts their credit card company (known as the issuing bank) asking to (ask lots of questions about/try to find the truth about) the charge in question
Step 3: Issuing bank reaches out to the (person who sells things)'s bank - Once a customer startsthe chargeback process, the customer's bank will reach out to the (person who sells things)'s bank asking them to provide proof that the customer (bought something for money) products (that are bought and sold) or services. This can include things like: invoices, receipts, proof ofdelivery--or anything else the (person who sells things) has to prove that the (instance of buying something for money) was valid.
Step 4: Decision time - After looking at (again) all the proof given by the (person who sells things)'s bank, the cardholder's bank must decide whether or not the (instance of buying something for money) was actually valid.
Step 5: Customer is (based on knowledge and learning) - At this point, the customer must acceptthe proof given by the buying (and owning) bank and either pay for the products (that are bought and sold), or continue to argue against the (instance of buying something for money) and begin aprocess known as legal hearing. If the buying (and owning) bank decides/figures out the (instance of buying something for money) was not valid, then the cardholder (customer) will get a refundfor the transaction. But not to worry--if you're a Square seller and the chargeback is coveredunder Chargeback Protection, then Square will cover the costs of the chargeback on your behalf.
Step 6: Legal hearing - If the issuing bank and (person who sells things) bank do not come to anagreement, as a last resort they'll enter what's called the legal hearing process. The legal hearingprocess is goverted by the issuing credit card company, and their decision is completely and totally final. The credit card company (Visa, American Express, etc.) will review the proof given bythe parties and will have the last word on who must pay for the charges. If a (person who sells things) loses the legal hearing process, they may choose to look (for) access to help andrepayment in a court of law, at their own expense.
Credit Card Chargebacks: Some Common Causes
Here are some of the most common chargeback guilty people (or things):
1) Fake/illegal (because of lying and stealing) transactions
If someone sees a charge from your business but never bought anything from you, it could meanthat there's illegal dishonesty/stealing (by lying) at play. This will likely start (trouble) achargeback. To protect your business from this type of chargeback, it's a good idea to have apoint of sale (POS) that can accept chip cards and contactless payments like Apple Pay, which arethe most secure ways to pay. This is especially important because of the (related to something you owe) shift (which went into effect in October 2015). If your business isn't set up to acceptchip cards, you could now be on the hook for certain types of fake/illegal (because of lying and stealing) transactions (whereas (before that/before now) the banks ate this cost). Read more inour Guide to the EMV (something you owe/something you're responsible for/disadvantage) Shift.
2) Shipping problems
If a customer never received an item in the mail, that could land you a chargeback. To preventthis situation, make sure you have an efficient shipping system in place with watching and following numbers at the ready.
3) Technical problems
If your website isn't working properly, or customers fumbled something in the checkout process(user error), they may have been (without any advance planning) charged for something theydidn't intend to buy. Be sure to (combine different things together so they work as one unit) arespectable POS and (buying things online) system that has an easy-to-travel safely throughcheckout process.
4) Credit not processed
Another common reason for chargebacks is an accident (or confusion) during the return or creditprocess. That is, customers return something expecting a refund and don't see that credit in theirbank account right away. To help avoid this, make sure you have a reliable system in place forhandling returns and credits. Also make a point to clearly state your returns or cancellation policyto customers when they're buying or returning something. That way everyone is on the samepage.
5) Problems with items
Sometimes customers issue a chargeback if they're dissatisfied with a product or service for onereason or another. Chargebacks for professional services can be the hardest to judge for thisreason, as the quality of a service is widely (open to opinion and judging; not black-and-white). The solution to this one is simple: Run a great business that puts in order of importance qualityand customer experience.
6) Unrecognizable business name
One of the most common reasons for chargebacks is billing clients with an unrecognizablebusiness name. Let's say your business sells coffee and bagels. Your shop is called "San FranciscoBakeshop," but your business' name is registered as S.F.B. Businesses/projects. When customerssee a mysterious charge by S.F.B. Businesses/projects, customers may accidentally start achargeback for what they believe was a fake/illegal (because of lying and stealing) (instance of buying something for money). Avoid customer confusion by having clear, consistentcalling/labeling.
7) Customer saw an almost the same product for cheaper in other places
Some chargebacks happen well after (instance of buying something for money), when thecustomer sees an almost the same or identical product at a lower-priced price in other places. Toavoid this kind of chargeback, think about/believe offering a "grace period" or pricechanges/recalculations if you often sell brand name retail products (that are bought and sold).
If you sell with Square and are dealing with a chargeback, we're here to help. Square ChargebackProtection excuses you from (responsibility for/blame for) payment arguments, up to a total of$250 a month. All you have to do is provide us with some basic information (related to/looking at/thinking about) the payment in question, so we can fight the argument on your behalf. Whichmeans you're covered -- no matter how it's resolved.
The EMV Liability Shift and Chargebacks
In what is known as the “liability shift,” on October 1, 2015 the nation changed how banks and processing networks handled certain types of credit card fraud. Businesses that swiped cards with EMV chips rather than “dipping” them in an EMV card reader could now be held liable for fraudulent transactions. The liability shift may have caused a striking rise in chargeback abuse for card-present transactions, with some merchant service providers seeing as much as a 50% increase in EMV-related chargebacks. Some experts speculate this could be because consumers recognize that for merchants who don’t process chip cards, the merchant is technically liable for any fraud that can occur after “swiping” a card with a chip. That’s why it’s more important than ever to process EMV chip cards with a EMV payments terminal like the Square contactless and chip reader.
How to Prevent Chargebacks
Although there's no (promised that something will definitely happen or that something will definitely work as described) way to prevent chargebacks, (people who sell things) can take somesteps to prevent some kinds of chargebacks from happening. This includes:
If possible, always try to get a customer signature for in-person (instances of buying things for money). Require a valid government-issued IDs before every credit card (instance of buying something for money), and keep proof of all credit card orders.
Have a clear, easy-to-understand return policy.
Have an (able to be known because of previous knowledge) business name on credit cardstatements.
Use a delivery service that needs/demands signature upon (the act of reaching a destination).
Train workers on best practices for card-present and card-not-present transactions.
If you're taking online orders, be sure to use a payment gateway or online payment processorthat (checks for truth/proves true) the AVS on file for the card being used.
(in a way that's close to the truth or true number) describe items. Customers who receive itemsthat are not as described have valid grounds for a chargeback.
Responding to customer service issues quickly and nicely.
Remember: If you do get hit with a chargeback, it's important to respond to your bank orpayment processor quickly. Many banks will simply process the chargeback for the customer if a(person who sells things) does not respond in the given out/set aside time.
Square Protects Sellers from Chargeback Illegal dishonesty/stealing (by lying)
- What’s the difference between chargebacks vs refunds?
- What is a chargeback fee or chargeback settlement fee?
- Is there a chargeback time limit?
- Are debit card chargebacks handled in the same way?
- How do I write a chargeback rebuttal letter?
What’s the difference between chargebacks vs. refunds?
A refund is a transaction started by the (person who sells things), repaying a customer who isdissatisfied with the products (that are bought and sold) or service (bought something for money). A chargeback is an argument started by a customer, usually for a fake/illegal (because of lying and stealing) transaction. In a chargeback, the transaction is reversed and money isreturned to the customer by the (person who sells things)'s bank.
What is a chargeback fee or chargeback settlement fee?
A chargeback fee, or chargeback settlement fee, is an added fee your credit card processingcompany may charge you in addition to the reversed money, if they find you at-fault for achargeback. Many payment processing companies may prevent you from accepting credit cardscompletely if you have an unusual amount of chargebacks on your account.
Remember: Square never charges any chargeback fees. If your customer starts a chargeback, ourdisputes team will fight on your behalf. We cover all (able to be picked/able to participate)chargebacks, up to $250 a month.
Is there a chargeback time limit?
Most buying (and owning) banks put a timeframe on when customers can start a chargeback foran (instance of buying something for money). This ranges anywhere from roughly 60 to 90 daysafter (instance of buying something for money). Chargeback time limits change/differ widelydepending on the issuing bank, and the chargeback code or reason. Check with the issuing banksto decide/figure out what time limits may apply to you.
Are debit card chargebacks handled in the same way?
Generally speaking, debit card chargebacks are harder for cardholders to argue. If the debittransaction was processed as credit (with a signature) then the chargeback process is just likeother chargeback processes. But if the debit card transaction was approved by PIN, card holdershave a smaller window in which illegal dishonesty/stealing (by lying) protection is available. Card-present debit transaction are carefully thought about/believed one of the safest for (people who sell things), which is why debit card transactions tend to be cheaper for (people who sell things)to process also.
How do I write a chargeback rebuttal letter?
If you're a (person who sells things) who's been charged with a fake/illegal (because of lying and stealing) chargeback, you may want to start the chargeback representment process. In additionto providing proof of (instance of buying something for money) and products (that are bought and sold) delivered to the customer specified, you'll also need to write a chargeback argumentletter to the buying (and owning) bank. Before starting your letter, be sure to look up thechargeback reason code (listed below), and provide forcing/forceful/interesting proof of (instance of buying something for money).
In your chargeback argument letter, you may want to include:
Receipts or invoices
Proof of delivery confirmation, especially with signature
Proof that the item was acceptable (the customer used the item, didn't complain upon delivery, etc.)
The correct recording and delivery of the customer's CVC or AVS
The good news is, if you sell with Square, you never need to worry about writing chargebackargument letters, but we do ask our sellers to address their customer's claim quickly in theInformation Request Form that we email for every argument. We then use that information toplan a forcing/forceful/interesting argument letter on your behalf. With Square, sellers can resteasy about silly and unimportant/not serious (in a disrespecful or inappropriate way)chargebacks and time using/eating/drinking paperwork. Even if you lose your case, all qualifiedchargebacks less than $250 a month are covered under our Chargeback Protection policy.
Chargeback Reason Codes
|Chargeback Code||Authorization Errors|
|A01||Charge Amount Exceeds Authorization Amount|
|A02||No Valid Authorization|
|A08||Authorization Approval Expired|
|Chargeback Code||Type: Fraud|
|F22||Expired or Not Yet Valid Card|
|F24*||No Card Member Authorization|
|F29||Card Not Present|
|Chargeback Code||Type: Card Member Dispute|
|C02||Credit (or Partial Credit) Not Processed|
|C04||Goods/Services Returned or Refused|
|C08||Goods/Services Not Received|
|C14||Paid by Other Means|
|C18||“No Show” or CARDeposit Cancelled|
|C28||Cancelled Recurring Billing|
|C31||Goods/Services Not as Described|
|C32||Goods/Services Damaged or Defective|
|M10||Vehicle Rental – Capital Damages|
|M49||Vehicle Rental – Theft or Loss of Use|
|Chargeback Code||Type: Processing Error|
|P01||Unassigned Card Number|
|P03||Credit Processed as Charge|
|P04||Charge Processed as Credit|
|P05||Incorrect Charge Amount|
|P22||Nonmatching Card Number|
|Chargeback Code||Type: Inquiry Related Chargeback|
|Code||Type: Chargeback Programs|
|FR2||Fraud Full Recourse Program|
|FR4||Immediate Chargeback Program|
|FR6||Partial Immediate Chargeback Program|
*These American Express chargeback codes require an inquiry first.
Retrieved on 5/26/2016 from AmericanExpress.
|Chargeback Code||Chargeback Reason|
|30||Services Not Provided or Merchandise Not Received|
|41||Cancelled Recurring Transaction|
|53||Not as Described or Defective Merchandise|
|57||Fraudulent Multiple Transactions|
|75||Transaction Not Recognized|
|76||Incorrect Currency or Transaction Code or DomesticTransaction Processing Violation|
|77||Non-Matching Account Number|
|80||Incorrect Transaction Amount or Account Number|
|85||Credit Not Processed|
|86||Paid by Other Means|
Visa chargeback reason codes retrieved from Visa.com on 5/26/2016.
Detailed Chargebacks Reason Codes List for Mastercard
Mastercard chargeback codes fall in to four categories:
- Cardholder disputes
- Point-of-interaction error
|Chargeback Code||Chargeback Reason|
|4801||Requested Transaction Data Not Received|
|4802||Requested / Required Information Illegible or Missing|
|4807||Warning Bulletin File|
|4808||Requested / Required Authorization Not Obtained|
|4812||Account Number Not on File|
|4831||Transaction Amount Differs|
|4835||Card Not Valid or Expired|
|4837||No Cardholder Authorization|
|4840||Fraudulent Processing of Transaction|
|4841||Canceled Recurring Transaction|
|4846||Correct Transaction Currency Code Not Provided|
|4847||Requested / Required Authorization Not Obtained and Fraudulent Transaction|
|4849||Questionable Merchant Activity|
|4850||Credit Posted as Purchase|
|4853||Cardholder Dispute – Defective / Not As Described|
|4854||Cardholder Dispute – Not Elsewhere Classified (U.S. Region Only)|
|4855||Non-receipt of Merchandise|
|4857||Card-Activated Telephone Transaction|
|4859||Services Not Rendered|
|4860||Credit Not Processed|
|4862||Counterfeit Transaction Magnetic Stripe POS Fraud|
|4863||Cardholder Does Not Recognize – Potential Fraud|
|4870||Chip Liability Shift|
|4871||Chip / PIN Liability Shift|