ARA Retail Crime Series: Avoiding Credit Card Chargebacks

Credit card chargebacks are on the rise and can be a growing cost to your business.  Merchant fees and retrieved funds impact on cashflow, while managing the disputes take time and energy that could be better directed to your business. Learn how to recognise and protect your business from the disruption caused by fraudulent charge backs.

What is a chargeback?

  • A chargeback occurs when a customer contacts their back and “disputes” a transaction on their account.
  • Disputes can be made up to 18 months from the original purchase date.
  • Disputes where ‘the card is not present” are becoming much more frequent online.

Why chargebacks are good?

  • Chargebacks increase consumer confidence shopping online as there is a process to manage legitimate fraudulent activity on credit and debit cards.
  • They can provide retailers with valuable insights in business processes if a customer has failed to receive a refund or is unable to resolve an issue

What is the chargeback process?

  • Cardholder disputes the process with their bank
    • Cardholder bank retrieves the funds
    • The dispute is assessed
  • Merchant is alerted to the outcome and has 3 options to:
    • Submit evidence
    • Accept dispute
    • Do nothing
  • Cardholder’s bank reviews the evidence
    • Cardholders bank overturns dispute – fees and charges returned to the merchant
    • Cardholder’s bank upholds the dispute – fees and charges not returned to the merchant

Examples of chargebacks:

  • the customer complains that the goods or services are not as described on the website;
  • the customer has been billed twice or for the wrong amount;
  • the customer does not recognise the transaction as the business name on the payment card statement is different from the business name on the website;
  • the customer argues that they never received the order;
  • there’s confusion between the retailer and the customer over a return or refund amount;
  • fraud … the customer claims they did not authorise the transaction.

How to avoid chargebacks:

  • Learn from the nature of chargebacks by improving business processes. Examples are:
    • clear up billing errors;
    • simplify returns;
    • provide 24/7 customer service;
    • keep customers informed and;
    • where you have recurring payments, keep customers informed with billing alerts;
  • Make strategic use of your merchant acquirer’s transaction fraud monitoring and mitigation services (or if you are large enough, choose your own service);
    • consider the value of your product or service and its appeal to friendly or criminal fraudsters;
  • Consider how authentication services such as 3D Secure can work for you. For example, if the fraud monitoring platform rejects a transaction, it might then be sent to 3D Secure for authorisation (which could result in the customer receiving a one-time password to enter into their computer or phone). Often the transaction is assessed as legitimate, even if it is not, and with 3DS the liability of the value of the purchase is shifted away from the retailer to the card issuer.


Content Credit: David Ojerholm is a Director of The Initiatives Group, a specialist payments consultancy The Initiatives Group, led by Lance Blockley and David chairs the ARA’s Payments Committee. David has 40 years experience in financial services His career includes being a founder of Pinpoint, that grew to provide loyalty programs to 25 banks, their 100 million customers and 50,000 merchants, eventually being acquired by Mastercard to become their global loyalty business. Prior to that David worked at Westpac and American Express.




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