Merchant Account Pricing

A chargeback is the response when a customer requests a refund from their credit card company. The merchant is billed by the merchant bank which has been billed by the customer’s issuing bank. The chargeback is often the result of fraudulent use of a credit card, either by the customer, the merchant, or an unauthorized user.

Most chargebacks are initiated by the customer who notices a discrepancy of some type in the monthly credit card statement. This may be an item which the customer claims not to have purchased, it may be a double charge for the same item, or it may be an item which the customer ordered but never received. The most common reason for a chargeback is when the customer returns an item to the merchant but the credit is not processed to the customer’s account.

The merchant is usually held responsible for chargebacks. Too many chargebacks to a merchant account can result in a freeze or hold on the merchant account, a deposit being required in order to continue to use the merchant account, or the account being shut down completely.

Some of the reasons for a chargeback can include transaction date beyond the card’s expiration date, invalid account number, an error in the transaction amount, a transaction record that is incomplete, illegible or incorrect, a counterfeit transaction, the transaction record cannot be provided, the customer’s signature is missing or incorrect. There are many other reasons, but the burden of proof is generally on the merchant.

There are some instances where the customer knowingly participates in a fraudulent transaction. Typically the customer will make a purchase over the internet using a valid credit card, then once the item is received they will claim non-receipt and initiate a chargeback. Unfortunately, there is very little a merchant can do in this situation unless the item was shipped and a signature confirmation was required. A delivery confirmation will also prove that the item was delivered, but not to whom.

When a merchant successfully disputes a chargeback, it is known as a chargeback reversal. Sometimes disputes go to arbitration in order to settle the issue between the customer and the merchant. Again, it is a rare instance where the merchant does not lose in one sense or another when a chargeback is initiated by a customer.

Today, chargeback rules are becoming more cumbersome and more complex as they are changed and adjusted. Some companies are taking over as chargeback companies and specializing only in this area.

Chargebacks are harmful to the merchant especially if it results in a freeze or shutdown of the merchant account. Not only is business disrupted when customers are unable to use the option to pay by credit card, but time and money is spent fighting unwarranted chargebacks which are difficult to win at best.

This is one area that is difficult to prevent or even lessen. Certainly if the customer returns an item, credit to the account should be initiated promptly, but other than that, ensuring that credit card transaction forms are completed accurately and promptly is the best protection against chargebacks.