You check your bank account to do some reconciling for your business and you notice that there is a debit from your account by your Acquirer for a transaction you deposited over a month ago. When you call your Acquirer, you find out that your customer has disputed the transaction and the item has been charged back. What does this mean?
A chargeback is a dispute that can be initiated by either your customer or an issuing bank. The first step to protecting yourself is against disputes is knowing what they are.
There are two types of disputes, Retrievals and Chargebacks. Typically, a dispute will start as a retrieval request. In this scenario, a customer sees a charge on their credit card statement that they either do not agree with or would like more information on. They will contact their issuing bank and the issuing bank will issue a Retrieval Request to the Acquirer. The money for this transaction at this point has NOT been debited from your bank account. These disputes could be for reasons such as the cardholder not remembering the transaction or they believe that they have not received the goods for the transaction. Your Acquirer will then contact you looking for a sales slip of that transaction. What is key to remember is that in order to successfully win any retrieval or chargeback, you must have three items.
- A swipe or imprint of the card showing that the card was present at the time of the transactions.
- An authorization number showing that the card was properly authorized at the time of the transaction
- A signature showing that the cardholder was present at the time of the transaction.
Absence of any of these three items and it will be up to the issuing bank to decide who will win the case. You will have a limited amount of time to respond to the Acquirer, typically 14 days, and you must return as much information as you can so that your Acquirer can properly dispute any legitimate transactions on your behalf. If you do not respond or do not respond in time, the retrieval will then become a Chargeback and at this point, the money will be debited from your account. Typically, depending on the reason code of the dispute, you will still have an opportunity to dispute a chargeback but once the limited time has lapsed for a Chargeback, the case is deemed closed and the money will remain with the cardholder.
Certain disputes start as Chargebacks which means that the money is debited immediately and while you still have the opportunity to dispute, the time available to provide this information back is much shorter. Be sure to respond to these right away.
Issuing banks can also initiate Chargebacks. These are typically transactions completed on fraudulent credit cards. Currently, if you can prove that you did your due diligence as a merchant and obtained all three of the above mentioned requirements, the likelihood of the transaction being returned to you is very high and the Issuer will be responsible for the transaction. However, after the Liability shift in the spring of 2011, if you are not EMV enabled, the liability for these fraudulent chargebacks will shift to you, the merchant and you will not have the opportunity to dispute these chargebacks.
A cardholder will always have the opportunity to dispute a transaction. Make sure you have the information to properly defend yourself and if you aren’t already, ensure that your Acquirer has a plan to get your EMV enabled.