What is a Chargeback?
If you accept credit cards in your online store, you might have to deal with chargebacks. A chargeback is a demand made from a bank to return funds to a cardholder. When a cardholder has an issue with a charge on their card, they contact their bank and dispute this charge. The cardholder can be your customer or just a person who thinks that their card was fraudulently used for buying something in your store.
The bank opens a dispute for a chargeback and you can try to resolve it by replying and providing evidence that the transaction was legitimate.
Chargebacks can happen if a credit card or PayPal account was used illegally for buying something in your store. If you receive a chargeback, you need to contact your payment processor immediately.
The bank or the credit card company that issued the card reviews the evidence to make a decision. Then they close the chargeback in either your favor or the cardholder's favor. If you win the chargeback, you get the disputed amount. If the cardholder wins the chargeback, the disputed amount is returned to them.
There can be situations when it is better to ask your customer to close the chargeback dispute and issue a refund to them yourself.
Getting chargebacks is very unpleasant. If you have a received a chargeback notification from the payment processor you use in the Store, you need to take the following steps.
Locate the Disputed Order
When you get a chargeback, you need to understand which order was disputed.
To locate the disputed order:
- Log in to your payment processor account and find the transaction that was disputed.
- Copy the transaction ID. You can also copy this from the chargeback notification.
- Go to the Store Menu, click My Sales, and then click Orders.
- Paste the transaction ID into the Search field.
- The order that was disputed appears.
- You will find customer's email and phone number in the order details, so you can contact the customer to find out why they decided to dispute the payment.
Reasons for Chargebacks
You will see the chargeback reason in the chargeback notification from your payment processor. The are three standard reasons:
- Item not received. A customer claims they did not receive the product they ordered and paid for.
- Item significantly not as described. The customer says the item they received is considerably different than what they expected basing on the description. For example, they ordered a black mug, but received a blue plate.
- Unauthorized transactions. A customer claims that the purchase was made without their consent or permission or they were charged twice for the same item. Be careful when you see this reason as this can be a mistake as well as the actual fraud. You need to contact your payment processor immediately.
When you receive a chargeback, you can either accept it or dispute it. This should be done in your payment processor account.
Contact your payment processor as soon as possible.
If you agree that the payment should be returned, it is best to accept the chargeback.
If you do not agree with the chargeback and want to dispute it, you need to submit evidence to the payment processor. Evidence usually includes:
- the date and time you fulfilled the order
- the billing information the customer provided
- the IP address and country used for the order
- email messages or any other communication you had with the customer
- shipping and tracking information for the order (if the product or service was digital, an activity log that shows that the customer accessed the product or service)
- descriptions and pictures of the products from your store that prove that they were as described
The following are chargeback instructions for the most popular payment providers:
- Square: How to dispute the chargeback
- PayPal: Resolving disputes, claims, and chargebacks
- Stripe: Responding to a dispute
- Chase Integrated Payments Powered by WePay: How do I challenge the chargeback?
If you accept online payments by credit cards, chargebacks might occur. It is important to maintain a low chargeback rate, not only because chargebacks are bad for your business, but also because some payment providers can block your account if you receive many chargebacks.
You can prevent chargebacks by following these recommendations;
- Closely review and investigate high-value or suspicious orders before fulfilling them.
- Respond quickly to customers’ inquiries, especially if they are about payment processing and shipping.
- Make sure you set reasonable expectations for your customers regarding to when they can expect the delivery. Provide a shipment tracking number if possible.
- Keep your customers updated on the order processing. Make sure you send tracking information for orders that need to be shipped.
- Add your contact information (including phone number and address) to your site and store and make sure it is easy to find.
- Add your store policy (including your return policy) to your site and make it easy to find.
You may also want to have customers agree to the store policy before placing an order.