A chargeback is a dispute initiated by a customer against the organization who accepted their card as payment in exchange for goods or services. The chargeback process is available as a protection for cardholders against fraud and merchants who do not provide their product/service as promised.
When a bank receives a chargeback dispute from one of their cardholders they open an investigation by contacting the processor and requesting evidence that the product/service was provided. The processor will then notify the organization of the chargeback and advise as to what documentation should be provided.
While rare for most organizations, chargebacks can be a costly and time-consuming strain. Dishonest cardholders can try to take advantage of the system and the burden is on the organization to prove that they fulfilled their commitment to the cardholder. It is recommended that you respond to all chargeback notices as quickly as possible and try to resolve any disputes with your donors before they result in a chargeback.
What are common chargeback reasons?
- Fraudulent transaction
- Duplicated charges
- Not as described/defective merchandise
- Services not provided or merchandise not received
- Refund not processed after returned item
- Forgetfulness of making the transaction
How can I avoid chargebacks?
- Have internal checks and audit procedures, to void donations within the first 24-48 hours. Are there multiple donations from the same email address in a short time frame? Or are their lots of small donations in a short time frame (scammers)?
- Ensure you are clearly communicating the name of your organization to the donor so they know what to expect on their credit card statement.
- Implement address verification to ensure the address matches the credit card billing address.
- Remind donors of upcoming recurring schedules before the charge takes place. Remind them what their donation is for and the value/impact it's making in your organization.
Why should I care about chargebacks?
- The fee varies by gateway, but typically each charge back comes with a fee to your organization ranging from $25 - $75 per chargeback. These fees can add up and it's in your organizations best interest to minimize the number of chargebacks you receive.
- When a chargeback occurs, the funds are automatically withdrawn from your bank account; leading to loss of donations.
- Victims of fraud (credit card spammer) will begin to doubt your organizations security and reputation can be negatively impacted.
- If there are too many chargebacks, your organization can loose it's merchant account.
- Your staff will be tasked with addressing chargebacks, which is another task on top of their already very busy day.
Q: Is there a penalty if we do not address disputes/charge-backs? If so, what is it?
A: By not responding to disputes/chargebacks you run the risk of losing funds or not receiving deposits entirely. Your merchant account could be paused or terminated if it continually crosses various thresholds from reporting statistics. We always recommend responding to all chargebacks within the given time frame.
Q: How many chargebacks must occur before this becomes an issue?
A: We monitor chargebacks as well as the card brands and we look at a few types of ratios. We look at the total count of chargebacks and volume and anything over 0.50% will get flagged. Also, if we see early chargebacks (less than 30 days after processing).
Q: What specific documentation does a merchant need to provide to contest a dispute?
A: This varies by the type of dispute but usually proof of the sale / product being delivered and some sort of cardholder authorization. The dispute notification will include the details the merchant should provide.