What You Need to Know About Chargebacks

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Do you often deal with chargebacks in your business? A chargeback is a fund return to a customer, which is forcibly started by the customer’s issuing bank. It is specifically the reversal of an outbound fund transfer from a customer’s credit card, credit line, or bank account. Here are some more things you need to know about this mechanism for consumer protection, as well as how you can use phone verification to protect your establishment.

There are different types of credit reversals. These include ATM reversal, or when an ATM deposit is found to have less funds than presented. There is also bank error correction, as well as direct deposit chargeback where a deposit is made to the wrong account holder. In returned check deposit, a check or money order deposit item is returned because of Not Sufficient Funds (NSF), a closed account, or fraudulent acquisition. The distribution industry also has its own version of chargebacks, which occur when the supplier gives a higher price for a product than what has been set by the distributor for the end consumer. Here, the distributor files for a chargeback to get back what it lost.

Here’s how the process begins. The customer contacts his or her issuing bank and files a complaint revolving around one or more items in his or her credit card statement. This usually happens when the customer happens to transact with an unscrupulous sales agency or merchant. Identity theft is also a reason behind chargebacks, which allow the reversal of an unauthorized purchase or transaction in one’s account.

A “reason code” is a numeric code selected and submitted by the issuer with each chargeback. These codes vary according to bank network, but fall under four general types: clerical (duplicate billing, incorrect amount charged, unissued refund); technical (non-sufficient funds and bank processing error); fraud (identity theft); and quality (goods and services not received during the time of purchase stated).

As a merchant, though, there is still room for you to dispute a chargeback. This is especially so when the original invoice was signed by the customer, and the acquirer and issuer can assist you in this process. This, however, is still done according to the corresponding bank network or card association’s set of rules.

Merchant penalties are in place due to chargebacks. Payment service provides, for instance, may charge merchants for every chargeback received. MasterCard and Visa, too, may also impose stringent fines against acquiring banks that keep merchants with a high chargeback record. But there are ways for you to avoid chargebacks or minimize its recurrence in your establishment.

You may use phone verification services, a real-time service that easily integrates into your online shop, CRM application, or other Internet-based business system. It allows you not only to verify phone or every individual contact with a live phone call or SMS message, but also get further contact information and data to help maintain your customer lists. This phone verification service is only one among the many you can avail yourself of to ward off fraudulent parties and prospects.

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