What is Pre Arbitration Chargeback
Chargeback of Visa and Mastercard credit cards
What are chargebacks in German? (Definition)
The term “chargeback” comes from English and means “compensation” in German. The chargeback was created by financial institutions to protect credit card users from misuse. If a credit card holder finds a payment on his credit card bill that he has not made, he has the option of requesting that the amount collected be reversed within a period of time. The amount is debited from the merchant and credited to the credit card holder's account.
Reasons for chargebacks from customers
In the case of contradictions by the customer that lead to a chargeback, there may be objective reasons, e.g. if no goods were delivered in accordance with the contract or no goods at all. Criminal machinations can also be the reason. As with direct debit, the cardholder has the option of canceling the debit from his credit card account and having the debited amount credited again. However, the credit card holder must provide a chargeback reason, which is coded in the form of a number.
The most common reasons for chargebacks are:
- The goods do not match the description in the retailer's shop or are defective
- The cardholder has not received the goods / services / credit
- A debit occurs after a subscription / membership is canceled
- A direct debit cannot be assigned
- The customer denies having made a payment
- The credit card transaction was not submitted within the agreed time
In the event that a third party charges a credit card with fraudulent intent, the actual cardholder can quickly get his money back. The same applies in the event that he has not received the contractual performance owed.
Credit card holders can cancel a charge that, in their opinion, has not been instructed accordingly. Some banks give a period of six weeks for this. The Visa and Mastercard guidelines give a period of eight weeks. In principle, the transactions should be checked regularly and incorrect bookings reported immediately. If the credit card holder checks his sales via an online area, the individual transactions are listed there. The transactions can also be canceled here. After the chargeback has been triggered, the amount is credited to the credit card account.
The process of a chargeback
The cardholder can request a chargeback up to 120 days after the transaction. If the customer triggers a chargeback, the credit card company first checks whether the requirements for triggering the chargeback are met. If this is the case, the chargeback will be forwarded to the acquirer bank. The amount of the disputed transaction will now be credited to the merchant's account. The dealer can also dispute the chargeback. If this happens, the retailer must prove the legal validity of the disputed transaction with documents that are important for the transaction (including a copy of the purchase receipt). After the credit card company has checked the documents submitted, it forwards them to the card-issuing bank. If no agreement can be reached, the case goes to arbitration. Here, an arbitration committee from the credit card company reviews all information and the documents submitted. Usually the committee's decision is final and must be accepted. The "loser" has to bear the costs of the process.
The activation of a chargeback for the Visa card is possible online or using a form. It is done through the bank that issued the card. The following information is usually requested: the 16-digit credit card number, the customer name and address, the name of the retailer, the date of purchase and the purchase amount or the amount claimed if it differs from the purchase amount. In addition, the customer is asked to give a reason for the chargeback: double debit, debit that cannot be assigned, suspected brand forgery when ordering online, goods not received. These are just a few of the reasons that are listed.
The process of a chargeback with the Mastercard is the same as with the Visa credit card. Customers just have to make sure that they actually have a credit card. Visa and Marstercard debit cards do not offer a chargeback option. With debit cards, the amount is debited directly from the account. Debit cards can be distinguished from credit cards by their appearance. Only the credit cards have a Visa or Mastercard logo and a raised credit card number on the front.
Challenges for retailers in online shops
For retailers, chargebacks mean not only lost sales, but also human resources and costs. In the worst case, the acquirer bank terminates the business relationship.
Additional effort when triggering chargeback
Chargebacks are associated with additional work for the retailer. In order to identify the reasons for a chargeback, to verify customer statements or to clarify disputed issues, employees have to spend more time, which in turn is reflected in personnel costs.
In addition to the personnel costs, there are other costs that are also borne by the dealer. For the merchant, the amount credited to his account is initially canceled again when the transaction is reversed. In addition, the credit card issuer or the supervising bank charges fees for the additional processing. General investment costs such as system costs should also be taken into account.
In addition to the described negative effects for the merchant, there is also the fact that the merchant's chargeback rate deteriorates with every payment cancellation. Above a certain size (approx. 2%), the Acquirer Bank no longer accepts the continuation of the business relationship and withdraws the relevant authorization number from the merchant. Therefore, justified complaints should be responded to as quickly as possible with a refund (credit to the customer's credit card account).
Prevent fraud on online orders
There are a number of measures that traders should take to protect themselves against the wide range of possible criminal activities.
Consumer-based fraud prevention
With consumer-based fraud protection, consumer-specific data is used to keep payment defaults to a minimum. Addressees are verified here and it is checked whether the specified person actually exists. Customers who have been noticed by previous negative history, such as dunning or debt collection procedures, can also be excluded with the help of negative lists.
Card-based fraud prevention
Merchants like to use card-based measures to order higher-value products or products that have a delivery address abroad. The Address Verification System (AVS) checks the card data (e.g. the address) as well as the validity and the Card Verification Code (CVC).
The 3D secure process also increases security when shopping online. With Mastercard the procedure is called Mastercard Securecode, with Visa Verified by Visa. After entering the credit card number by the customer, a connection to the card issuer is established. The buyer is asked for authentication via a code. After successfully entering the code, the payment will be carried out. In the case of a static procedure, a unique password is requested. With a dynamic procedure, an individual code is generated for each authentication.
Account-based fraud prevention
The account-based fraud prevention measures are used primarily by merchants with direct debit schemes to reduce the return debit rate. The existence of the bank code is checked as well as the logical composition of the account number. In addition, negative features of account data can also be identified using the Direct Debit Check - an external blacklist with information on card blocks and outstanding return debits.
You can find more information about fraud management in online payment here.
Customer service to avoid chargebacks
If customers are not satisfied with the products or the delivery, they often contact their bank to initiate a refund. Instead, customer service problems could be resolved quickly and easily, thus avoiding any chargeback. Clear and direct communication of the contact options and short response times from customer service help to reduce the costs and effort of chargebacks.
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