My Merchant Account Blog

E-Commerce Chargebacks and Its History

Thursday, July 01, 2010

Chargebacks can be divided into a few simple categories:

• Non Receipt of Goods or Services Chargeback Codes
• Authorization Error Codes for Chargebacks
• Fraud Codes for Chargebacks
• Non Receipt of Information Chargebacks
• Cancelled or Returned Chargeback Codes

Merchants are winning more chargebacks now than in the past.  This is due in part of the merchants adding more verification tools during the checkout process.  Chargebacks occur when the consumer contacts the issuing bank to ask for a refund.  When this happens, different issuing banks will do different things.  For example, American Express will usually always side with the consumer.  Barclay's will sometimes call the merchant to see what can be done before issuing a refund. 

On the rise though is friendly fraud - the customer orders the product and then says the product was not received.  Or maybe the child gets one of his parents credit card to order a product - especially downloadable products.  A downloadable product generally has a chargeback ratio of 0.6% while apparel is slightly higher.

Merchants though walk a tight line when trying to reduce their chargeback ratio.  Too many extras added to the checkout process could lessen sales.

So where is the line to protect merchants from losing their products and more money?   Try to contact the customer and see what the problem might be.  If the child used the parent's credit card, the parent might be willing to work with you to settle the debt.

You always want to dispute the chargeback - no matter what: Chargebacks Are Not Worth Fighting For.  If the merchant account provider sees that you are not fighting any chargebacks, you might run the risk of losing your merchant account.  In 2009, only about 53% of merchants fought against chargebacks.  And from that, only one third of the merchants accounted for 90% of the disputes.

Quantum Gateway

The Quantum Gateway is one of the few gateways on the market that offers a number of fraud prevention tools at no extra charge, from Verified by Visa (VBV) / MasterCard Secure Code (MSC), MaxMind - GeoIP, and DialVerify.  Implementing these procedures can greatly reduce a lot of the chargebacks.

Chargeback Ratios

Sunday, July 22, 2007

To determine the chargeback ratio, a number of factors are usually considered.  Of course, you want to do all you can to prevent chargebacks, but they do happen from time to time.  Most providers will provide an online solution for your to respond to chargebacks in a timely manner.  Always respond to chargebacks in a timely manner.

Time Limit to File a Chargeback

Most issuing banks have a time limit for consumers to file a chargeback.  This varies per issuing bank if the card is a debit or credit card.  A good rule of thumb is 180 days from the date of the transaction.  With a signature debit card, Regulation E of the Federal Law states the consumer has 60 days from the statement date to notify the issuing bank of an error.  Most issuers will return an erroneous transaction for as long as they are permitted under applicable network rules (120 to 180 days).  Regulation Z governs the credit card issuers and states consumers should notify the issuing bank within 60 days of the receiving the statement.  Issuers will generally leverage the chargeback procedures of the associations and assist consumers who discover an error for as long as they are permitted American Express seems to be the most lenient with chargebacks, almost always favoring the consumer with the time limit sometimes going over 180 days.  This can sometimes be a deciding factor for a merchant to accept American Express or not.

The Numbers

Let's assume you have a product that you sell for $50.00.  And you have 200 transactions that month, totaling $10,000.  If you have one consumer call their issuing bank to do a chargeback, your chargeback ratio would be .5%.  Most merchant account providers would like you to stay under one per cent. 

When a chargeback happens, always make sure you respond in a timely manner and send the information the provider asks for.

Chargebacks Are Not Worth Fighting

Wednesday, May 16, 2007

For whatever reason, some merchants are not worrying about chargebacks.  They might only get one every few months but they are not replying to it.  I guess they feel that the card associations are going to rule against them, so why bother? Well you bother because it is your business, it is your right to fight.

For example, if someone were to walk into your store, load up a basket full of items and walk out the front door - you would stop them, right?  By not fighting a chargeback, you are allowing the customers to walk right in and take whatever they need.  OK, you might have insurance but guess what, your insurance rates will go up because your risks are going up.  Your merchant account fees will also go up or they might even suspend or terminate you because you are a higher risk.

Retrieval Requests and Chargebacks

Of course, the first is to always try to prevent a retrieval request or a chargebacks. A retrieval request could be as something as simple as I don't recognize the name of this company.  I wrote about this because this happened to me once as a consumer: Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks.  It also happened back in October.  I sent in my yearly membership fee to Sam's Club.  Over the weekend, I was checking my credit card statement online and noticed a charge for Wal-Mart.  Since I knew I had not been to Wal-Mart, I called the credit card company and told them the charge was unauthorized and to send me a new card (I thought my card had been compromised).  The next day I remembered I had used that particular card to pay for my Sam's Club membership via United States mail, but surely a company as large as this and actually wanted to get into this business would have a correct merchant identifier on the credit card statement?  It turns out I was wrong, since the charge was the same amount as Sam's Club's fees. 

Just to remind you just in case - always respond to a chargeback, no matter what.  That is unless of course, you are a merchant who opened a merchant account to process thousands of fraudulent credit card transactions in a short period of time.  Yes, those people do exists and you want to make sure that your provider does not think you are one of those types of merchants.

Non Receipt of Goods or Services Chargeback Codes

Wednesday, November 08, 2006

There is only one chargeback reason code in this group. These chargebacks can happen from time to time if the consumer claims the services were not provided or the goods were not delivered - maybe even not received in a timely fashion.

Reason Code 30: Services Not Provided or Merchandise Not Received

Reason Code 30 can happen when card issuer receives a claim from a cardholder the merchandise or services ordered were not received or the cardholder cancelled the order as the result of not receiving the merchandise or services by the expected delivery date.

The most common causes is when the merchant:

• Did not provide the services
• Did not send the merchandise
• Billed for the transaction before shipping the merchandise
• Did not send the merchandise by the agreed-upon delivery date

Notified of a Chargeback

If the merchandise was delivered by the agreed-upon delivery date, contact the merchant account provider with details of the delivery or send your merchant bank evidence of delivery, such as a delivery receipt signed by the cardholder or a carrier's confirmation that the merchandise was delivered to the correct address. If the merchandise was software that was downloaded via the Internet, provide evidence to your merchant bank that the software was downloaded to or received by the cardholder.

If no delivery date has been specified, and the card issuer charged back the transaction less than 30 days from the transaction date, send a copy of the sales receipt to your merchant bank pointing out that 30 days have not yet elapsed. You should also state the expected delivery date.

If the specified delivery date has not yet passed, return the chargeback to your merchant bank with either information or a copy of the documentation showing the expected delivery date.  In general, you should not deposit sales receipts until merchandise has been shipped.  For custom-made merchandise, you may deposit the entire transaction amount before shipping, provided you notify the cardholder at the time of the transaction

If the merchandise was shipped after the specified delivery date, provide your merchant bank with the shipment date and expected arrival date, or proof of delivery and acceptance by the cardholder.

If the contracted services were rendered, provide your merchant bank with the date the services were completed and any evidence indicating that the customer acknowledged receipt.

To Help Prevent Chargeback Reason Code 30

If delivery of merchandise is to be delayed, notify the customer in writing of the delay and the expected delivery date.  As a service to your customer, give the customer the option of proceeding with the transaction or cancelling it (depending on your customer service policy).

If you are shipping merchandise without requesting proof of delivery, consider the costs and benefits of doing so compared to the value of the merchandise you ship.  Proof of delivery - such as certified mail or a carrier's certification that the merchandise was delivered to the correct address and signed for by the cardholder - will allow you to return the chargeback if the customer claims the merchandise was not received.

If you sell software that can be downloaded via the Internet, it is suggested that you design your web site to enable you to provide evidence to the merchant account provider that the software was successfully downloaded and received by the cardholder. You might even consider using extra scrubbing techniques like Verified By Visa and MasterCard Secure Code and using fraud protection services.

Cancelled or Returned Chargeback Codes

Thursday, November 02, 2006

These chargebacks from Visa can easily be prevented by the merchant as long as the merchant provides timely refunds to the cardholder. If you sell items via the internet, keep the communication open with the consumer to also help prevent chargebacks of this nature.

Reason Code 41: Cancelled Recurring Transaction

This usually happens when the cardholder notifies the issuing bank and tells them the recurring transaction was cancelled but the merchant is still charging the cardholder; transaction amount exceeds the pre-authorized dollar amount range; or the merchant was supposed to notify the cardholder prior to processing each recurring transaction but has not done so.

The most common causes are:

• Cardholder
  • Withdrew permission to charge the account
  • Cancelled payment of a membership fee
  • Cancelled the card account
• Card Issuer
  • Charged back a previous recurring transaction, and the cardholder did not expressly renew
  • Cancelled the card account
• Merchant
  • Received notice before the transaction was processed that the cardholder account was closed
  • Exceeded the pre-authorized dollar amount range and did not notify the cardholder in writing within ten days prior to processing the transaction
  • Notified the cardholder in writing within 10 days of processing the recurring transaction, after which the cardholder notified the merchant not to charge the account

Notified of a Chargeback

If the transaction was cancelled and credit issued for the recurring transaction, notify your merchant bank of the date that the credit was issued. If the transaction was cancelled and a credit was not issued, accept the chargeback. Do not issue a credit since the chargeback has already been processed.

If the transaction was not cancelled or you have no record of the cancellation, accept the chargeback. The cardholder does not have to supply evidence that you received the cancellation notice.

If the customer claimed they were billed for the service after they cancelled, notify your merchant bank that the bill in question covered services used by the customer between the date of the customer's prior billing statement and the date the customer requested cancellation. You might also need to provide proof as well.

Reason Code 53: Not as Described or Defective Merchandise

This can happen when the cardholder notifies the card issuer that the goods and / or services were:

• Not the same as shown and described on the screen for Internet transactions, or as described on the sales receipt or other documentation presented to the cardholder at the time of the transaction
• Not the same as the merchant's verbal description for a telephone transaction
• Shipped to the cardholder and received, but was damaged or defective

Note

Merchants should keep in mind that their return policy has no bearing on disputes that fall under Reason Code 53: Not as Described or Defective Merchandise.

For this reason code, the cardholder must have made a valid attempt to resolve the dispute or return the merchandise. A valid attempt to return may be to request that the merchant come retrieve the goods at their own expense.

The most common causes are:

• The merchant sent the wrong merchandise to the cardholder
• The merchandise was damaged during shipment
• The merchant inaccurately described the merchandise or services
• The merchant did not cancel the services purchased by the cardholder
• The merchant did not perform the services as described
• The merchant did not accept the returned merchandise
• The merchant accepted the returned merchandise but did not credit the cardholder's account

If credit was processed and merchandise was returned or services were cancelled and a credit was processed to the cardholder's account, provide your merchant bank with information or evidence of the credit.

Some Possible Remedies for Chargeback Reason Code 53

• If you have not received the returned merchandise (double-check your incoming shipment records to verify) or the cardholder has not cancelled the service, advise your merchant bank. (The cardholder must make a valid attempt to return merchandise or cancel the service.)
• If the merchandise was as described, provide your merchant bank with specific information and invoices to refute the cardholder's claims.
• If merchandise was returned because it was damaged, provide evidence that it was repaired or replaced.
• If the service performed was as described, provide your merchant bank with as much specific information and documentation as possible refuting the card-holder's claims.. It is recommended that you specifically address each and every point the cardholder makes

If the cardholder's complaint is valid and you received the returned merchandise but have not yet credited the cardholder's account, accept the chargeback. Do not process a credit since the chargeback has performed this function.

To Help Prevent Chargeback Reason Code 53

• Ensure that descriptions of merchandise or services shown in catalogs, on Internet screens and sales receipts, or used in telephone order-taking scripts are accurate, complete, and not unintentionally misleading.
• Regularly review your shipping and handling processes to ensure that orders are being filled accurately.
• Train staff on proper procedures on taking and filling orders, and schedule review sessions at least annually.

Miscellaneous Information on Chargeback Reason Code 53

• Chargeback Amount Is Limited - The chargeback amount is limited to the amount of the merchandise returned or services cancelled . The chargeback may include ship-ping and handling fees for shipment of the defective merchandise.
• Card issuer Waiting Period - If merchandise was returned, the card issuer must wait at least 30 calendar days from the date the cardholder returned the merchandise (to allow sufficient time for you to process a credit to the cardholder's account) before generating a chargeback.
• Quality Disputes - This chargeback code also may be used for quality disputes (for example, a car repair situation).

Reason Code 85: Credit Not Processed

This can happen when the card issuer received a notice from a cardholder acknowledging participation in a transaction for which goods were returned or services cancelled, but the cardholder has not received a written refund acknowledgement or credit voucher from the merchant or the credit has not appeared on the customer's Visa statement.

Some Possible Remedies for Chargeback Reason Code 85

The merchant

• Did not issue a credit
• Issued the credit but did not deposit the credit with its merchant bank in time for it to appear on the cardholder's next statement
• Did not issue a credit because the business does not accept returns, but did not properly disclose its return policy

To Help Prevent Chargeback Reason Code 85

If you never received, or accepted, returned merchandise or a cardholder's cancellation, advise your merchant bank immediately. Proof of cancellation is not required from the cardholders. If the cardholder returns merchandise or cancels services in a manner contrary to your disclosed return or cancellation policy, provide your merchant bank with documentation showing that the cardholder was aware of and agreed to your policy at the time of the transaction. Specifically, the cardholder's signature must appear on a sales receipt or other document stating your return policy.

If your establishment's return policy is on the back of a receipt that has been signed on the front and initialed on the back as required by Visa policy, you must provide your merchant bank with copies of both sides of the receipt. If the return policy is on the back of the receipt and is not signed or initialed, you have not provided evidence of proper disclosure

If a customer returns merchandise or cancels services in accordance with your disclosed return or cancellation policy, and you have already issued a credit, inform your merchant bank of the date that the credit was issued.

If a customer returns merchandise or cancels services in accordance with your disclosed return or cancellation policy, and if you have not already issued a credit, accept the chargeback. Do not process a credit since the chargeback already has performed this function.

Card Not-Present Transactions

Ensure that your establishment's return or refund policy is always clearly stated in your printed advertising materials, catalog and catalog order forms, and, for Internet merchants, on your electronic order screen. Always explain your policy to customers who place orders by phone. Be sure to include refund information with the initial transaction. For Internet transactions, your web site should include a screen with your return or refund policies, which appears automatically during the check-out process (that is, it is not on a separate disclosure screen that the customer has to click to open). The screen should include I Accept or Agree buttons for the customer to click on before completing the transaction, indicating that he or she has read and agrees to your policies.

Describing your return policy in a catalog or verbally on the phone does not constitute proper disclosure unless you also obtain a customer signature indicating disclosure was provided. Such policy descriptions may support your case for having alerted the customer to your policy.

If a cardholder can complete an Internet transaction without clicking an Accept or Agree button to indicate acceptance of your refund, return, or cancellation policy, proper and adequate disclosure has not occurred.

Gift Returns

In cases where a gift recipient has returned a gift ordered by mail, telephone, or Internet, you may provide a cash or check refund, an in-store credit receipt, or another appropriate form of credit to the gift recipient. If the cardholder claims a credit was not issued to his or her account for the gift, provide appropriate documentation or information to your merchant bank that the credit was given to the gift recipient.

For gift returns, if credit is to be used to a charge card, the credit must be issued to the same Visa account number that was used for the original transaction.

No-Return Policy Disclosure

If your business has a limited return policy or does not allow returns at all, the words "no returns" or similar words must be preprinted on all copies of the sales receipts near the cardholder signature line.

Authorization Error Codes for Chargebacks

Saturday, October 28, 2006

Authorization errors can happen from time to time. If the merchant is in a hurry and does not place close attention to the POS terminal as the transaction is being processed, there is a chance that the transaction could be charged back by the issuing bank.

Reason Code 70: Account Number on Exception File

This is when the card issuer received a transaction that was below the merchant's floor limit and the account number was listed on Visa's Exception File maybe because the merchant either did not check the Exception File or received a negative response.

The most common cause is when the merchant processes the transaction below its floor limit without making sure that the exception file had been checked. Floor limits are typically specified in merchant agreements, and the exception file is part of the merchant bank's or third-party processor's transaction processing system; that is, it should be automatically checked when a card is swiped. Floor limits are zero for all card-not-present transactions. This means that they always require authorization regardless of the dollar amount of the transaction.

If you are notified of the chargeback and you did check the Exception File, inform your bank the date that the Exception File was checked. You do not have to send a copy of the receipt, as the bank should be able to check its transaction log. If you did not check the Exception File, accept the chargeback.

When doing the transaction, check the exception file before completing transactions below your floor limit to help prevent this type of chargeback. With most POS terminals, the exception file is checked automatically when the card is swiped and the dollar amount entered. If in doubt, check with your merchant bank or third-party processor to make sure their transaction-processing system automatically checks the exception file for your under-floor-limit transactions and tell your sales staff that if they are ever in doubt about whether an authorization is necessary, they should request an approval.

Reason Code 71: Declined Authorization

This usually happens when card issuer received a transaction for which authorization had been declined. Usually the merchant attempted to circumvent or override a declined authorization by one of the following methods:

• Forced posting: After a decline response, the merchant forced the transaction through without attempting another authorization request
• Multiple authorization attempts: After an initial authorization decline, the merchant re-swiped the card one or more times until the transaction was authorized. In this situation, authorization might occur if the card issuer's authorization system times out or becomes unavailable, and the transaction is forwarded to Visa
• Split transaction: When a transaction for a certain amount is declined, the merchant splits the amount into several smaller transactions, each of which is submitted and authorized separately
• Alternative authorization method: The merchant swiped the card at a POS terminal, and the authorization was declined. The merchant then resubmitted the transaction by key entry or called in a voice authorization, and received an approval

If you are notified of a chargeback and the transaction was authorized, and you have an authorization approval code, inform your merchant bank of the transaction date and amount. Multiple authorizations attempts may not be accepted if the first authorization was declined.

When completing a transaction, obtain an authorization before completing transactions exceeding your floor limit to help prevent this type of chargeback. If you are unable to get an electronic authorization because your terminal isn't working or because the card's magnetic stripe cannot be read, call your voice authorization center. If the transaction is approved, write the approval code on the sales receipt in the appropriate space, and imprint the card's embossed information onto the receipt, using a manual imprinter.

Reason Code 72: No Authorization

This usually happens when the card issuer received a transaction that exceeded the merchant's floor limit and authorization was not obtained. The merchant did not obtain an authorization for a transaction above its floor limit or, for card-present transactions, obtained it after the transaction date. Floor limits are typically specified in merchant agreements. Any transaction above a merchant's floor limit must be authorized.

If you do receive a chargeback, and the transaction was authorized, inform your merchant bank of the transaction date and amount. If the transaction was not authorized, accept the chargeback.

During a transaction, obtain an authorization before completing transactions exceeding your floor limit to help prevent this type of chargeback. The authorization request is sent automatically when you swipe the card and enter the dollar amount. If you are unable to get an electronic authorization because your terminal isn't working or because the card's magnetic stripe cannot be read, you can request an authorization either by key-entering the transaction or calling your voice authorization center. If the transaction is approved, be sure the approval code is on the sales receipt in the appropriate space; in the case of a voice authorization, you will need to write it on the receipt. You should also imprint the embossed account information from the front of the card on a sales receipt or manual sales receipt form, which the customer should sign.

Reason Code 73: Expired Card

This usually happens when the card issuer received a transaction that was completed with an expired card and was not authorized.

Card Not Expired--Key-Entered Transactions

For key-entered transactions, the expiration date should be on the manually imprinted copy of the front of the card. If the expiration date on sales receipt shows the card had not expired at the time of the sale, send a copy of the receipt to your merchant bank. The chargeback is invalid regardless of whether authorization was obtained.

Card Expired, Authorization Obtained

If the card was swiped or a manual imprint made, an authorization approval was obtained as required, inform your bank of the transaction date and amount. Many merchant banks automatically handle this type of chargeback so you never see it.

Card Expired, No Authorization Obtained

If the card is expired and you did not obtain an authorization, accept the chargeback.

When completing the transaction, check the expiration or "Good Thru" date on all cards. A card is valid through the last day of the month shown; for example, if the Good Thru date is 07/10, the card is valid through July 31, 2010 and expires on August 1, 2010.

If the transaction was a MO/TO or Internet transaction, then the expiration date provided by the cardholder is considered correct. Many merchant banks automatically handle this type of chargeback, so you really never see it.

Always request an authorization for transactions on expired cards and submit the expiration date on the card as part of the authorization request. The expiration date is submitted automatically when you swipe a card. If a transaction is not approved, do not complete the sale.

Reason Code 76: Incorrect Transaction Code

This is when the card issuer received a complaint from a cardholder, stating that a debit was received for a transaction that should have been credited to the account. This can happen when the merchant issued a credit voucher but it posted as a sale instead.

If you receive a chargeback, and the correct code was posted, provide your merchant bank with documentation of the transaction, showing that it was posted correctly as a credit to the cardholder's account (and a debit to your account).

If the transaction was posted as a sale, accept the chargeback.

The easiest way to prevent this chargeback is when issuing a credit voucher, be sure to use the credit transaction code on your POS terminal.

Reason Code 77: Non-Matching Account Number

This is when account number transmitted to the card issuer did not match any account number on the card issuer's master file, and the transaction was not authorized. It usually happens when the merchant incorrectly key-entered the account number or incorrectly recorded the account number for a mail order or telephone order.

If you are notified of the chargeback and the account number matches, matches the account number cited on the chargeback, and the transaction received an authorization approval, return the chargeback to your merchant bank and request your bank to include the authorization log for this transaction when returning it to the card issuer. If the account number on the sales receipt does not match the correct account number cited on the chargeback, accept the chargeback, then process a new transaction with the correct account number, and be sure to request an approval code.

Chargebacks on Card-Not-Present Transactions

If the account number on the sales receipt matches the account number cited on the chargeback, and the transaction was authorized as a mail order, telephone order, or Internet transaction, return the chargeback to your merchant bank. Request the bank to include the authorization log for this transaction when returning it to the card issuer. Many merchant banks handle this type of chargeback automatically, so that you never receive them.

If the account number does not match, accept the chargeback.

Transaction Catch

After accepting the chargeback, the new transaction with the correct account number should be submitted within 30 days of the original transaction. Due to the chargeback cycle, in most cases, merchants will be unable to meet this time frame, which may in turn result in a second chargeback for Reason Code 74, Late Presentment.

Card-Present Transactions

If you swipe a card and the terminal cannot read the card's magnetic stripe, request authorization by key entering the account number. Be sure the key-entered account number matches the embossed account number on the card; be careful not to transpose numbers. Use a manual imprinter to imprint the embossed information from the face of the card onto the sales receipt that is signed by the cardholder.

If your terminal is not working or you do not have a terminal, call your voice authorization center for authorization approval and write the authorization approval code on the sales receipt in the appropriate space. Use a manual imprinter to imprint the embossed information from the face of the card onto the sales receipt that is signed by the cardholder

Compare the account number displayed on your terminal or electronically printed on the sales receipt with the account number embossed on the card. If they do not match, do not complete the transaction. Call your voice authorization center and ask for a "Code 10 authorization ." The card issuer may ask you to pick up the card if you can do so safely.

Card-Not-Present Transactions

For phone orders, read the account number back to the customer to verify it.

Recurring Billing

Because recurring payment transactions occur on a regular basis over time, it is possible that the cardholder's account number could be closed or could change (for example, if a new card is issued due to a bank merger or account upgrade). If authorization is declined on a subsequent recurring payment trans- action, contact the customer to obtain updated payment information.

Reason Code 74: Late Presentment

This happens when the card issuer received a transaction after the 30-day time frame and account number is blocked or closed. Usually the merchant did not deposit the sales receipt with its merchant bank within the time frame specified in its merchant agreement. Time limits are set for depositing transactions to ensure timely processing and billing to cardholders. When you hold transactions beyond the period defined in your merchant agreement (usually one to five days), you lose money, affect customer service (cardholders expect to see transactions on their Visa statements within the same or next monthly cycle), and possibly invite a chargeback. No remedies exist for chargebacks on sales receipts deposited 181 days or longer after the transaction date.

If you receive a chargeback, and the sales receipt was deposited within the 30-day time frame, ask your merchant bank to forward a copy of the receipt to the card issuer. If the sales receipt was not deposited within 30 to 180 days of the transaction date and the cardholder account has been closed, the chargeback is valid. If the sales receipt was deposited more than 181 days after the transaction date, accept the chargeback. (In this situation, the cardholder account status is not a factor.)

Deposit Timing Guidelines

Deposit sales receipts with your merchant bank as soon as possible, preferably on the day of the sale or within the time frame specified in your merchant agreement.

If you deposit paper sales receipts, ensure your staff deposits them on a regular schedule within the time frame required by your merchant bank to help prevent this type of chargeback. If you currently process deposits manually, consider the costs and benefits of a transaction data capture system at the point of sale. Transaction data capture sales terminals allow you to electronically deposit your sales transactions after you have balanced them each day. Electronic cash registers are another option. Electronic cash registers can be set up so that your transactions are automatically deposited in batches or on a real-time basis.

Reason Code 80: Incorrect Transaction Amount or Account Number

This happens when the card issuer identified the transaction amount or account number that posted as different from what is shown on the sales receipt. This usually happens when the merchant made a data entry error, i.e., keyed in the wrong amount or account number for that particular transaction.

If you are notified of this type of chargeback and if the transaction amount or account number on the sales receipt is the same as on the clearing record deposited for payment, provide supporting documentation to your merchant bank to re-present the item. If the transaction amount or account number on the sales receipt is not the same as on the clearing record, accept the chargeback. If the chargeback is due to an incorrect account number, process a new transaction using the correct one; however, do not process a credit since the chargeback already has performed this function. For incorrect-amount chargebacks, the chargeback amount will be the difference between the amount charged and the correct amount, so no further action is needed.

Reason Code 82: Duplicate Processing

This usually is when the card issuer received the same transaction more than once for posting to the cardholder's account. It usually happens when the merchant:

• Entered the same transaction into the point-of-sale terminal more than once
• Electronically submitted the same batch of transactions to its merchant bank more than once
• Deposited with its merchant bank both the merchant copy and the bank copy of a sales receipt
• Deposited sales receipts for the same transaction with more than one merchant bank
• Created two sales receipts for the same purchase

If you are notified of this chargeback, provide your merchant bank with information documenting that the two transactions are separate, or send legible photocopies of the alleged duplicate sales receipts and any other related documents, such as cash register receipts, to your merchant bank. The receipts should clearly indicate that the two transactions are not charges for the same items or services. If you have not already deposited a credit to correct the duplicate, accept the chargeback. Do not process a credit now as the chargeback has performed that function. If you identified the duplicate transaction and processed an offsetting credit before you received the chargeback, inform your merchant bank of the date the credit was issued. If your merchant bank requires other procedures, follow them. However, many merchant banks automatically look to see if a credit has been processed, so you may never see these chargebacks.

Review each batch of paper sales receipts prior to deposit to ensure that only bank copies--and not merchant copies--are included. If transactions are sent electronically for processing, ensure each batch is sent only once and as a separate batch number to help prevent this type of chargeback and take care to avoid entering the same transaction more than once.

Reason Code 86: Paid by Other Means

This is usually when the card issuer received a written complaint from the cardholder stating that he or she paid for the transaction by other means, i.e., cash, check, or other type of card. It can happen when the cardholder initially tendered a Visa card in payment for the transaction, but then decided to use cash or a check after a credit card receipt had been completed. The merchant erroneously deposited the credit-card sales receipt in addition to the cash, check, or other payment method.

If you are notified of a chargeback and the Visa card was the only form of payment tendered for the transaction, provide your merchant bank with sales records or other documentation showing that no other form of payment was used. If a Visa card sales receipt was erroneously deposited after another form of payment was used, and a credit was issued, provide your merchant bank with the date of the credit. Many banks automatically search for credits, so you may not see these. If a Visa card sales receipt was erroneously deposited after another form of payment was used, and a credit was not issued, accept the chargeback. Do not process a credit as the chargeback has already performed this function.

Reason Code 96: Transaction Exceeds Limited Amount

This happens when the card issuer received a transaction that exceeded the allowable amount from a Limited-Amount or Self-Service Terminal (including an Automated Fuel Dispenser (AFD) transaction). It can happen if the merchant processed a transaction from a limited-amount terminal and exceeded $25 or a self-service terminal (including AFD) and exceeded $50.

If you are notified of a chargeback and the transaction was less than the allowable amount of $25 or $50, provide documentation supporting transaction amount to merchant bank (e.g., copy of the sales receipt or audit tape). If the transaction amount exceeded $25 or $50, accept the chargeback. If the appropriate credit has been processed to the cardholder's account on the disputed transaction, send your merchant bank evidence of the credit. If the appropriate credit has not yet been processed on the disputed transaction, accept the chargeback. Do not process a credit since the chargeback has already performed this function. If the transaction was not conducted at an unattended terminal (i.e., Limited-Amount or Self Service) provide proof to merchant bank.

To help prevent this type of chargeback, evaluate potential risk of chargeback exposure by ensuring terminals are properly set at transaction amount limits.

Fraud Codes for Chargebacks

Monday, October 23, 2006

Fraudulent transactions happen all the time via the Internet. People use various methods like MaxMind GeoIP, calling the customer, only shipping to he billing address, and maybe even products like LinkShield™ (this service seems to be unavailable to merchants) to help them curve these transactions.

Reason Code 57: Fraudulent Multiple Transactions

This is when the issuing bank is notified by the cardholder states he / she recognizes the transaction(s) but also states that he / she only authorized one of them.

This can happen if the merchant failed to void the other transactions or attempted to process transactions fraudulently.

If you are notified of this chargeback but have already issued a refund, notify your processor immediately with the transaction numbers. If there was actually a reason for multiple transactions, send a copy of all the sales receipts to the processor. If you have not issues the credit, accept the chargeback. Do not process a credit since the chargeback has already been done.

This type of chargeback could have a negative impact on your merchant account as it might indicate fraud at the point-of-sale. It could also just be a mistake. In either case though, most providers will do an investigation.

Reason Code 62: Counterfeit Transaction

This is when the issuing bank is notified by the cardholder claiming they were in possession of the credit card but did not authorize the transaction.

This might happen is the merchant failed to compare the first four digits of the embossed account number on the card with the pre-printed digits below the embossed number for a card-present transaction or you received authorization without transmission of the entire magnetic stripe.

If that card was swiped and you have a signature, provide a copy of that to your processor. If the transaction was fraudulent, accept the chargeback.

Check all card security features before completing the transaction to help prevent this type of chargeback. If the first 4-digits do not match, call your processor and tell them you have a possible Code 10. If you have to key-in the transaction because the card could not be read, be sure to get an imprint of the front of the card either on the printed sales receipt or a manual sales receipt form and get the customer to sign it.

Reason Code 81: Fraudulent Transaction - Card-Present Environment

This is when the issuing bank is notified that a sales receipt is missing required information, indicating a potentially fraudulent transaction. This could occur if the card issuer receives a sales receipt that has no imprint of the card's embossed or magnetic-stripe information or even the cardholder's signature the the cardholder certifies he / she neither authorized nor participated in the transaction.

This can happen if you do not swipe the card through a magnetic-swipe reader, you did not make a manual imprint of the card account information on the sales receipt for a key-entered transaction, you did not complete a card-present transaction without obtaining the cardholder's signature on the sales receipt or you completed a card-not-present transaction but did not identify the transaction as a mail-order / telephone-order or Internet purchase.

If account information was captured from the card's magnetic stripe, request that your processor send a copy of the authorization record to the issuing bank as proof that you swipe the card. You also should provide a copy of the sale receipt proving the cardholder's signature was obtained.

If the account number was manually imprinted on the sales receipt, send a copy of the sales receipt to the processor for documentation. The copy of the sales receipt must also contain the cardholder's signature to win the chargeback.

If the account number was not obtained from either swiping the card or manually, accept the chargeback.

If you did get the cardholder's signature on the sales receipt or a related document, send a copy of the document to the merchant account provider. You should also send evidence that that cardholder's card was present, specifically either a manually imprinted sales receipt or authorization record proving the card was swiped. You must be able to prove the sales receipt and other documentation are from the same transaction.

If you did not get a signature, accept the chargeback.

A high volume charge Chargeback Code 81 may also indicate a need for additional staff training in proper card acceptance procedures or better maintenance and cleaning of the magnetic-stripe readers in your terminals.

Reason Code 83: Fraudulent Transaction - Card-Absent Environment

If the issuing bank receives a complaint from the cardholder that he / she did not authorize or participate in the transaction or the transaction was charged to a fictitious account number for which authorization approval was not obtained, a chargeback could occur.

Usually this happens when the merchant processes a card-not-present transaction from a person who was fraudulently using an account number or the merchant processes a card-not-present transaction without submitting an authorization request.

The cardholder can cause this as well by not recognizing the card-not-present transaction on his / her statement due to an unclear or confusing merchant name or had his / her account number taken by fraudulent means.

If the transaction was a mail-order / telephone-order or Internet transaction and you received an authorization approval and an exact match to the AVS query and you have proof that the merchandise was delivered to said address, send a copy of the transaction invoice, proof of delivery, and any other information pertaining to the transaction to the merchant account provider.

If you did not use AVC and the item has been charged back to you, send a copy of the transaction invoice, proof of delivery, and any other information pertaining to the transaction to the merchant account provider.

All card-not-present transactions should be identified by the appropriate code for mail-order / telephone-order or Internet during both the authorization and settlement process. In most cases, this is automatically done by the transaction processing terminal or system, or electronic payment gateway. If not, be sure to write the appropriate code on the transaction receipt: "MO" for mail order; "TO" for telephone order; and "ECI" for Internet.

For card-not-present transactions, consider using AVS, CVV2, Verified by Visa / MasterCard Secure Code, to help reduce fraud. You will also want to make sure your merchant name will be recognized by the cardholder. You can reduce these chargebacks by sending out proper receipts.

Non Receipt of Information Chargebacks

Friday, October 20, 2006

Chargeback Reason are divided into six different categories. Today I will start with non-receipt of information.

Chargeback Code 60

Chargeback Code 60 is basically when the customer requested a copy of the receipt and it illegible or invalid. Maybe the merchant submitted a sales receipt that did not contain all the required information or the receipt was illegible because:

• POS printer ribbon was worn and the ink was too light
• POS paper roll was nearing the end and the colored streak indicating this made the print illegible
• The document submitted was not the requested copy of the sales receipt.
• The original sales receipt was microfilmed at a reduced size, resulting in blurred and illegible copies
• The copy was on colored paper
• The carbonless paper of the original sales receipt was mishandled, causing blotches and making the copies illegible

If you, as the merchant, receive this chargeback reason code, resubmit a legible or complete copy of the sales receipt to your merchant account provider. If you are missing information or a legible copy of the sales receipt cannot be provided, accept the chargeback. If the retrieval request is fraud-related and you provide a substitute sales receipt, accept the chargeback. You, as the merchant, has no representment rights unless the card issuer's chargeback is for "illegible item received or invalid".

Preventive Measures

For preventive measures, if you microfilm sales receipts, make copies of the microfilm at the same size as the original receipt, otherwise, the image(s) might make the receipt illegible.

• Change the POS printer ribbon routinely.
• When you see the colored streak, change the paper immediately.
• Keep the white copy of the sales receipt and give customers the colored copy. (Colored paper does not copy as well as white paper and might make illegible copies.)
• Handle carbonless paper and carbon- or silver-back paper careful. Silver-back paper appears black when copied. Any pressure on carbonless and carbon-back paper during handling / storage might cause blotches, making copies illegible.
• Position your logo or marketing message on sales receipts away from the transaction information.
• For fraud-relates retrieval requests, provide a copy of the signed sales receipt.

Chargeback Reason Code 75

Chargeback Reason Code 75 is basically the customer did not recognize the transaction and contacted the issuing bank. The most common reason is the merchant store name or location shown on the cardholder's billing statement was not correct or unrecognizable to the cardholder.

When this is the reason, provide any documentation that might help the customer remember, like a sales receipt, shipping invoice or delivery receipts, or a description of the merchandise or service provided.

The best way - especially when doing business on the internet is having a good receipt. It is critical that the merchant name, while reflecting the merchant's DBA name, also be clearly recognizable by cardholder.

Sell Your Chargebacks

Saturday, January 07, 2006

Ever get hit with a chargeback for service or product provided? Are you tired of giving away your hosting services, other services, or products for free? Why not consider selling your chargebacks and NSF checks. There are companies, like CRB Company, that specialize in buying chargebacks and NSF checks. You get paid, upfront, a % of the face value of the chargebacks/NSF's and they are responsible for locating and collecting from the consumer. For those that are selling webhosting plans for $19.95 a month, this might not seem to be worth it to you. Now, with the help of Host Legal, we have come up with new TOS for your company which may allow you to add fees to your chargebacks / NSF's. You have to have the fees listed in your TOS to be effective. These fees will vary from state to state.

Once these fees are calculated, you might be able to get at least the money back for the services rendered as well as the chargeback fee imposed by the Merchant Account Processor (MAP) or Third Party Processor. While it will not help you on your chargeback percentage, it will help on your receivables. Each service, chargeback, and returned check is different – just like a merchant account. I recommend that you contact CRB Company for more information on selling your chargebacks and returned checks since they also have some minimum requirements, which vary from merchant to merchant. They primarily deal with United States consumers. And if you have a webhosting company, check out Host Legal for more information on TOS if you are a web hosting company.

One thing to keep in mind, if the charge is known to be fraudulent, CRB or any other company, will not buy your chargebacks. The easiest way to tell this is if there was a police report filed. If so, CRB Company and most other companies cannot enforce these on the consumer. Feel free to contact CRB Company today for more information. If you provided the services or products to the consumer within your TOS and AUP, and they do a chargeback, chances are that you should be able to get your money back. For example, someone signs up with your hosting company and they use your services for one month. The uptime is well within your SLA. Yet, at the end of the month, they leave and decide to do a chargeback. Consider getting your money back. Or maybe you sell a script to someone. And maybe even help them install it. Then two weeks later - you get the chargeback notification. You know they are using it, but due to Visa's rules on chargebacks and the internet, you really do not have a leg to stand on. Consider speaking with CRB Company to get your money back for that script.

The extra charges that you are able to tack onto a chargeback or NSF check is state sensitive. Unfortunately, the resources to locate each of these numbers are very low. I recommend that before you update your TOS, to check with your attorney or State's attorney.

Now you are probably wondering what fees might be imposed? Well - to only give you an idea, let's say that you have a webhosting plan that is $19.95. After one month, the consumer cancels service and does a chargeback. What happens now? You get charged $15-$50 for that chargeback on top of the $19.95. So you are out $34.95-$69.95 right now. Now here is where it becomes tricky. What to "charge" exactly. You can charge the $19.95 and the chargeback fee. This is a start, but CRB Company and others are only going to give you a small percentage, so right now you are looking at probably only looking at $3-$7.00. Not too much so you will need to determine what your state might allow, possibly 3-5 times the amount of the chargeback along with a not too exceed amount. Let's say you charge 5X the chargeback, $60 recovery fee and your other chargeback fees ($25.00 from your MAP). This would be $204.70. And selling it to CRB could net you about $20.00. This is only an example.

Guess it is about time to update those Terms of Service. Good luck!