#chargeback system

Issuing bank received the complaint from the customer that goods or services he purchased are defective, damaged or not fit the expectation of the customer. Customer claims that policies explained verbally by the merchant during purchase were different and that what he received was different than expected.

Some Causes

Wrong merchandise/goods sent to the cardholder.

During shipment, goods got damaged.

The goods or services were described inaccurately.

The services purchased by the cardholder weren’t canceled on time.

The services did not perform as it was described.

The returned merchandise was not accepted by the merchant.

The returned merchandise accepted but merchant did not issue a credit to the cardholder.

Counterfeit consumer goods.

Necessary Evidence

If goods were returned or services were canceled, the merchant must provide the bank with all the information or evidence of the refund.

If the merchant hasn’t received the returned goods or the cardholder has not canceled the service, inform the bank. The cardholder must make a valid effort to return merchandise or cancel the service. The merchant must ensure that the incoming shipments are recorded to later verify.

If the cardholder’s complaint is legal and the merchant has received the goods, but have not refunded the amount, he must accept the chargeback. Do not process a credit until the chargeback has performed this function.

If the goods were accurate and as described, provide the merchant bank with specific information and invoices to deny the cardholder’s claims.

If merchandise was damaged and it was returned, provide evidence that it was repaired or replaced.

How to do Prevention?

Make sure that the policies regarding the merchandise or services are explained clearly, these should be delivered in the manner they are supposed to be delivered or as mentioned in terms and policies.

Make sure that orders are placed correctly and arrived perfectly. It must be reviewed and checked regularly during the delivery process.

The staff must be trained from time to time on how to accurately file an order.

The buyers must be notified of every cancellation request, credit or refund in order to reduce the possibilities of chargebacks.

Related Example-

Description

Mastercard has been issued a global liability shift program for ecommerce transactions. A chargeback is filed for this reason when an acquirer bank processed a transaction for a credit card accepted and later recognized in the list of Mastercard violation.

Most Common Causes

The merchant:

The transaction falls under the Global Security Bulletin of Mastercard.

The acquirer name, acquirer ID, merchant name and its location are lister in the Global Security Bulletin under Global Merchant Audit Program (GMAP).

The issue is not resolved within time frame specified in the procedure manual and in security rules.

The issuer did not report the transaction under SAFE within time frame.

The transaction is not processed within the specified period in merchant agreement.

Evidence Required

If the first chargeback was correct and the acquirer bank failed to change the dispute properly, the issuer may continue the chargeback with the same reason code originally processed.

If the acquirer bank lost data file requested submit the form found in the back of the procedure manual and security rules.

If the situation requires any other reason, the issuer must process the arbitration chargeback using the proper reason code.

Prevention

Process all the transactions at hybrid terminals.

If found counterfeit fraud reports it to SAFE product user guide of Mastercard.

Keep a record in a chip transaction and authorization message request should be approved by the issuer.

The time frame for these chargebacks is 120 calendar days from the Global Security Bulletin publication date.

Merchant was unable to verify the authorization code of the transaction at the time of purchase. A card-not-present transaction occurs when cardholder files a complaint that he/she neither participated nor authorized a particular charge. A card-not-present transaction occurs on a fictitious account number on which owner’s authorization was not obtained. Telephone sales, mail-order, Internet/online sales, monthly subscriptions, recurring and prepayment transactions are examples of card-not-present transactions. Mostly this situation occurs when someone fraudulently uses someone else’s credit card and processes card-not-present transaction without the consent or permission of the cardholder. Sometimes, cardholder does not recognize a card-not-present transaction on his statement because of the invisible, unclear or confusing merchant or product name.

Most Common Causes

POS device was not authorized for strip-read, online and face-to-face transactions, but only card-read or key-recorded transactions.

The transaction was not approved.

The card provided a service code of X2X (Positive Online Authorization-Only), but the transaction was not approved.

The transaction amount passed the limit from the floor limit that was installed by MasterCard at the time of purchase and was not approved.

The authorization request was denied or the transaction was made by an expired card.

If not authorized by Technical fallback and CVM fallback transactions.

The merchant processed a fictitious account number on which card owner’s authorization was not obtained.

The merchant processed a transaction card owner did not participate in.

The transaction is processed on the invalid card using an account number.

A family member ordered from the primary cardholder’s account without his permission.

It is also caused by the owner of the card not able to recognize purchase on the billing statement.

Evidence Required

The merchant should provide the document that business did not need to authorization.

The merchant may present the document that the cardholder obtained authorization for the transaction amount.

Providing the amount that was authorized, authorization approval code, and the date of the authorization the merchant should document the incomplete authorization

The transaction was below the issued floor limit and there was communicate failure to buyer or failure to POS device at the time of buying, the merchant should present document.

Prevention

The buyer’s bank found incorrect transaction amount or account number mismatched with the posted information with them and the information on the order receipt. The transaction was processed with the incorrect account number, incorrect transaction amount and/or had an error while calculating transaction amount without cardholder’s permission or the merchant altered amount after the order was processed without notifying to the cardholder.

Most Common Causes If the merchant

Entered wrong account number.

Entered wrong transaction amount for that particular transaction.

Altered the amount after getting the signature from the customer.

Made a mistake while calculating the amount.

Exchanged the amount after completing the transaction without taking permission from the cardholder.

Increased the transaction amount without getting any consent from the cardholder.

Evidence Required

Provide documents to the acquirer bank describing the product, the transaction amount and the account number on the order receipt are same as acquired information.

Accept the chargeback, if account number or transaction amount is different from the order receipt and the information posted.

If disputed chargeback for the incorrect transaction amount, the merchant should process a new transaction within 30 days from the original date, however, if chargeback already has performed its function never issue a refund for that particular transaction.

No action needed if the customer dispute chargeback for the incorrect amount.

Prevention

If the business accepts cards, swipe it or manually enter the account number, however, make sure that the account information is used from the face of the card on the order receipt.

Ensure to use a standard printer to print the order receipt.

If the cardholder has signed an order receipt, the merchant should not exchange or alter it.

If chargeback was imposed on an incorrect amount, the merchant must try to communicate with cardholder to adjust the order receipt to show up the correct amount.

Compare the key-entered to make sure that the transaction information typed is accurate.

When the charged credit card number doesn’t match to the actual card number used by the buyer bank. If the merchant provides documentation such as the print of the credit card showing accurate credit card number, magnetic stripe reading evidence and authorization or proof of credit issued, the chargeback may be reversed. Carefully recording the card number, properly entering key or swiping the card through the terminal can reduce chargebacks.

Most Common Causes

The transaction was lesser than the applicable limit and authorized offline by the chip. The Cardholder Verification Method (CVM) provides pin signature or doesn’t flash anything if recognized by the card parameters. As revealed by Investigation, if appropriate account number was not entered on Electronic Warning Bulletin as prior to the payment to the merchant. If transaction recognized and authorized as a non-face-to-face sale and primary presentment was submitted using the correct account number. If transaction processed using the retired account number and later received an authorization.

Evidence Required

Copy of printed Transaction Information Document. The merchant bank must provide adequate documentation to verify the presence of the card for the transaction that occurred at the point of Interaction (POI) terminal, which was not authorized at the point. If payment was made for an emergency, verify that the transaction was authorized, print authorization screen.

Prevention

Always check the exclusion file before completing transactions below the floor limit. Most point of sell-out terminals automatically verifies the exclusion file when the card is swiped and the amount is entered. Merchant must verify with the acquirer to make sure their transaction-processing system automatically verifies the exclusion file for the under-floor-limit transactions and inform the sales staff to request for an approval if they are ever in suspicion of a transaction. Exclusion File transactions for the floor limit should be zero. All transactions require approval, regardless of the amount.

Common Examples

When the charged credit card number doesn’t match to the actual card number used by the buyer bank. If the merchant provides documentation such as the print of the credit card showing accurate credit card number, magnetic stripe reading evidence and authorization or proof of credit issued, the chargeback may be reversed. Carefully recording the card number, properly entering key or swiping the card through the terminal can reduce chargebacks.

Most Common Causes

The transaction was lesser than the applicable limit and authorized offline by the chip. The Cardholder Verification Method (CVM) provides pin signature or doesn’t flash anything if recognized by the card parameters. As revealed by Investigation, if appropriate account number was not entered on Electronic Warning Bulletin as prior to the payment to the merchant. If transaction recognized and authorized as a non-face-to-face sale and primary presentment was submitted using the correct account number. If transaction processed using retired account number and later received an authorization.

Evidence Required

Copy of printed Transaction Information Document. The merchant bank must provide adequate documentation to verify the presence of the card for the transaction that occurred at the point of Interaction (POI) terminal, which was not authorized at the point. If payment was made for an emergency, verify that the transaction was authorized, print authorization screen.

Prevention

Always check the exclusion file before completing transactions below the floor limit. Most point of sell-out terminals automatically verifies the exclusion file when the card is swiped and the amount is entered. Merchant must verify with the acquirer to make sure their transaction-processing system automatically verifies the exclusion file for the under-floor-limit transactions and inform the sales staff to request for an approval if they are ever in suspicion of a transaction. Exclusion File transactions for the floor limit should be zero. All transactions require approval, regardless of the amount.

Common Examples

Description

MasterCard uses reason code 4842 for late presentment chargebacks if the cardholder’s account is permanently closed and the acquirer presents transaction after one of the predetermined time limits. Such situations arise the sales receipt is not collected from the acquirer within the time limit specified in merchant’s guideline or agreement.

Usually time limit is 180 calendar days from the transaction date.

Action Taken Transactions completed with electronically recorded card information (card-read or key-entered) Applicable Region All U.S. merchants Late Presentment More than 7 calendar days after the transaction date

Processing a credit card transaction involves multiple entities as well as four distinct stages: authorizing, batching, clearing and funding.

Most Common Causes

Limited time reversal rights. Allowed only if credit was issued. If proof can be presented that the sale was processed within the allotted time limit. The transaction amount was deposited on time. If the amount was deposited within the required time limit, provide your processor with a copy of the sales receipt to be represented to the card issuer. The transaction was deposited late and the account was closed. If the transaction was not deposited within the specified time limit and the account was closed, then the merchant should accept the chargeback. Do not issue a credit at this time.

Evidence Required

Transaction acknowledgment deposited within time limit: If the transaction acknowledgment was deposited within the time limit specified by your acquirer bank, ask your acquirer bank to forward a copy of the acknowledgment to the card issuer.

Prevention

Deposit order receipt with your acquirer as soon as possible, preferably on the day of the sale or within the time limit specified in the merchant agreement. Complete payment batches as immediately as possible. Process transactions within 180 days of the original purchase.

What is Merchant Response -

The buyer’s bank found incorrect transaction amount or account number mismatched with the posted information with them and the information on order receipt. The transaction was processed with incorrect account number, incorrect transaction amount and/or had an error while calculating transaction amount without cardholder’s permission or the merchant altered amount after the order was processed without notifying to the cardholder.

Most Common Causes If the merchant:

Entered wrong account number.

Entered wrong transaction amount for that particular transaction.

Altered the amount after getting the signature from the customer.

Made a mistake while calculating the amount.

Exchanged the amount after completing the transaction without taking permission from the cardholder.

Increased the transaction amount without getting any consent from the cardholder.

Evidence Required

Provide documents to the acquirer bank describing the product, the transaction amount and the account number on the order receipt are same as acquired information.

Accept the chargeback, if account number or transaction amount are different from the order receipt and the information posted.

If disputed chargeback for incorrect transaction amount, the merchant should process a new transaction within 30 days from the original date, however, if chargeback already has performed its function never issue a refund for that particular transaction.

No action needed if the customer dispute chargeback for incorrect amount.

Prevention

If the business accepts cards, swipe it or manually enter the account number, however, make sure that the account information is used from the face of the card on the order receipt.

Ensure to use a standard printer to print the order receipt.

If the cardholder has signed an order receipt, the merchant should not exchange or alter it.

If chargeback was imposed on an incorrect amount, the merchant must try to communicate with cardholder to adjust the order receipt to show up the correct amount.

Compare the key-entered to make sure that the transaction information typed is accurate.

Common Example