CARD SCHEMES AND CHARGEBACK PREVENTION
According to the most popular card networks - Visa and MasterCard, a cardholder can dispute any processed transaction. These disputes are called chargebacks. In this article we will talk about the funds reversal process and what measures do card schemes take to protect your business from fraudulent transactions.
WHAT IS A CHARGEBACK?
First of all, you need to know that a chargeback is a reversal of funds from the merchant’s account to the customer’s account, forcibly initiated by the issuing bank. The most common reasons for such cases are if the ordered goods or services were not delivered or if the delivered goods were not the same as the ordered ones.
Unfortunately chargebacks are an unavoidable part of running an online store, however, merchants can prevent or at least reduce their chargebacks by describing their products or services clearly, using a reliable shipping company, publishing an easy return policy and operating a 24/7 customer support service.
WHY ARE CHARGEBACKS SO DANGEROUS TO YOUR BUSINESS?
According to the card networks policies, there is a certain limit of the number of transactions that can be disputed, before any fines and penalties are levied.
If a merchant’s chargeback level exceeds 2% of the total monthly sales volume, there is a big chance that the acquiring bank or payment provider will face chargeback fees and penalties and consequently, your merchant account will be terminated.
HOW DOES THE CHARGEBACK PROCESS WORK?
The process begins with the cardholder contacting his issuing bank and lodging a complaint about the fraudulent or fallacious transaction. At this point, the issuing bank reviews the dispute and decides whether it is valid or not.
If the issuing bank finds the chargeback request invalid, the cardholder faces a chargeback fee as a penalty. On the other hand, if the issuing bank finds the chargeback request valid, it contacts the acquiring bank to inform them about the dispute. At this point, further research is made and the acquiring bank informs the merchant about the pending request. The merchant either accepts the request or objects it. If the merchant objects the request, he needs to provide sufficient proof that the dispute is invalid. In this case, the funds reversal will be declined. On the other hand, if the chargeback proofs to be valid, the amount of the disputed transfer will be sent from the merchant’s account to the cardholder’s.
WHAT DO CARD NETWORKS DO ABOUT CHARGEBACK PREVENTION?
3d secure is a protocol designed by Visa, licensed by MasterCard and Amex (aka Verified by Visa / MasterCard Secure Code / Amex SafeKey), that gives to online shopping an additional protection against fraudulent transactions. With 3D secure, some additional steps are taken with the aim to ensure that the cardholder is performing the transaction.
When using 3D secure, the customer will be at the end of the checkout process redirected from the online store to the “3D Secure “ page of the card issuing bank to get the authorization of the transaction. At this point the cardholder authenticates himself with the one time pin code (password). If the pin code is confirmed, the purchase is completed. So, even if someone steales your credit card data, they won’t know the one-time pin code, and consequently won’t be able to complete the purchase.
Unfortunately, your business still won’t be entirely protected against chargebacks, however, taking some additional protective measures, as making sure your customers are satisfied and using a reliable shipping company, will surely help to avoid many customer’s complaints.
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