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Chargeback Tips | How to limit them

Posted by Alex Neir on Wed, September 12, 2012 @ 01:28 PM
Chargback Tips
A chargeback is an element of accepting credit cards that cannot be eliminated. The ability of card holders to chargeback a transaction is a function of the security the credit card associations and credit card issuing banks developed to make consumers feel safe and secure with the use of credit cards.

A chargeback occurs when a customer calls their issuing bank to dispute a charge that appeared on their statement. Common reasons for customers to begin the chargeback process include, but are not limited to the following:

  • Unrecognized transaction on customer's statement
  • Fraud occurred
  • The quality of the service or merchandise that was received did not match what was promised
  • Incorrect amount charged
  • Transaction was not authorized
  • Consumer never received the service or merchandise promised

Based on this list, chargebacks cannot be eliminated. There are always circumstances that result in a chargeback but following a few simple tips can drastically reduce their frequency.

First, always ensure that the name that the customer recognizes is the name that appears for the transaction on the consumer’s bank statement. This is typically the DBA (Doing Business As) name that was used when creating the merchant account. If your business is Carl’s Super Store but the DBA that was used is Freedom Electronics there will be an increase in chargebacks as the customer will not recognize the name.

If you are contacted by an issuing bank with notice of a chargeback, make sure you respond within 12 business days. The issuing bank will usually request a sales draft to check the signature against what the bank has on file. It is recommended that the business retain sales drafts or credit cards receipts for up to 18 months.

Retail Merchants

If you are a retail merchant (have a retail store) make sure you always swipe the credit card through the terminal and get a signature on the receipt. If you must key the transaction in, make sure you get an imprint of the credit card and have the customer sign the imprint.

Internet or MOTO Merchants

If you are an internet merchant or mail order, telephone order merchant make sure you are using AVS (Address Verification Service). This service compares the address information provided by the customer with the information the bank has on file.

Make sure your processor includes your customer service number with your business name to be displayed on customer’s bank statement.

If you are selling expensive service or merchandise make sure you have an authorization contract signed by the customer. It is also a good idea to request a copy of the customer’s driver’s license to verify the signature on the authorization matches their driver’s license. This will eliminate the instances where the customer intentionally signs the authorization incorrectly so that it will not match the bank signature.

For more help with chargeback compliance and chargeback defense please contact our friendly staff at (800)917-8026.

Tags: Chargeback Compliance, Charge Back Tips, Chargebacks

Annual Payment Processing

Posted by Alex Neir on Wed, February 22, 2012 @ 12:57 PM
Annual Payment Processing

Annual payment processing is one of the more difficult features to get approved when setting up a merchant account. The difficulty in getting this feature approved is due to the increased risk of liability for the processor. Risk of liability is increased for the processor based on the additional time the customer has to chargeback against the business.

With a typical merchant account, products and services are provided in full at the time that the credit card payment is collected. At that point the customer has up to 18 months to initiate a chargeback if the business does not fulfill their obligation to provide the product or service promised. In the situation of an annual payment the business is providing the product or service over an entire year. Therefore, the timeframe for initiating a chargeback is extended an additional 12 months for a total of 30 months of liability for the processor.

It is very important for a business looking to offer annual payment options to disclose this intent to the processor in the application process. Failing to disclose intent and proceeding with annual payment processing can result in a violation of the merchant account contract. Violating the merchant account contract will lead to the account being closed, the business entered on the terminated merchant file and funds for the business held by the processor.

Each business will be evaluated independently to determine if annual payment processing can be approved. Items that increase the odds of a successful approval include:

  • Strong credit of the applicant(s)
  • Strong business financials
  • Strong business history

If you would like a consultation to determine if your business can be approved for annual payment processing please click on the link below and provide us with your contact information. A representative will be in touch shortly to begin the process.

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Tags: Terminated Merchant File, Annual Payment Processing, Chargebacks

Merchant Account Changes | Selling new products

Posted by Alex Neir on Tue, February 07, 2012 @ 02:02 PM
Merchant Account Change

Do you currently have an approved merchant account and looking to sell new products or services in your retail store or on your website? This post is intended to outline the rules imposed by your processor with regard to changing the products or services your business sells.

When your business originally applied for your merchant account you were required to give a description of the products and services you intended to sell. This product and service description was used by your processor to determine the SIC code for your business. The SIC code associated with your business determines the risk category used to underwrite and approve the account.

It is important to understand that the risk associated to the products and services you sell is significant to the processor that approved the account as they are ultimately responsible for any chargeback liability. Certain products represent less charge back risk, examples include; shipping, restaurants, screen printing, office supplies etc. Other products represent higher risks for chargebacks, examples include; electronics, travel, pharmaceuticals, auctions etc. It comes down to the fact that some products have a higher level of fraud associated to them as thieves attempt to acquire them.

In conclusion if you are looking to change or add new products and services to your business you will need to determine if the new offering resides in the same SIC code classification for the account that you were originally approved for. If they do you can usually sell and accept payment with your current account. If the new or changed products and services are outside of the SIC classification of your current account you will need to apply for a new account. If you are unsure, it is advisable to contact your processor. There can be serious consequences if you violate your merchant services agreement by selling unapproved products. 

Tags: Merchant Account Change, Merchant Account Education, Chargebacks

Chargeback Compliance | Part 2 of 2

Posted by Alex Neir on Fri, October 21, 2011 @ 08:10 AM

Chargeback Compliance:

If the customer or issuing bank alleges that the merchant has violated Visa and MasterCard Operating Rules then it is considered “Out of Compliance” and the merchant will not be protected by the chargeback process. The issuing bank must certify that a financial loss did or will occur as a result of the rule(s) violation. Each side has an opportunity to present their case to the Visa and MasterCard Analyst assigned to the case. Compliance cases are filed within 90 days (Visa) and 180 days (MasterCard) from the transaction date. The date of a Retrieval Request ( the date of violation) is 90 days for Visa and 45 days for MasterCard from the date the issuing bank received notice from its cardholder of a violation (Date of Discovery)

Examples of Chargeback Compliance violations include:

  • Failing to properly disclose “limited refund” or “return policies” to the cardholder at the time of the transaction.
  • Preparing two or more transaction receipts to avoid authorization for a single transaction.
  • Quality of service received from a travel and entertainment merchant.

Chargeback Compliance Filing Procedures, Fees and Penalties:

If you, the merchant, face a Compliance Violation claim, then you will be required to complete a Visa and MasterCard Compliance form and provide a description of the grievance, and submit copies of all supporting documentation. The issuing bank is required to provide the merchant with a Pre-Compliance letter, 30 days prior to filing, in attempt to settle the matter. As with a standard Arbitration, there is a Filing fee of $150.00, a Review fee of $250.00 paid by the losing party. Further, a $100.00 fine may be assessed for each technical violation found against the opposing party.

Criteria used for Chargeback Compliance Violation Decisions:

The arbitrator will consider the following when determining financial liability ~

  • Was there a rule violation and a resulting financial loss
  • Was the cardholder’s complaint reasonable
  • Should the disputed amount be allocated between the two parties

When facing a Chargeback, Arbitration or Compliance claim keep in mind…

When a merchant is facing a Chargeback claim, Arbitration request or Compliance Violation charge, the most important thing to remember is to respond quickly and accurately with sufficient supporting documentation to defend your business. Failure to respond by the stated deadlines is an automatic forfeiture of the transaction which means you will lose the full transaction amount and could be subject to fines.


For more information on chargeback compliance please call (800)917-8026.

Tags: Chargeback Compliance, Credit Card Fraud, Chargeback Defense, Chargebacks

Chargeback Overview | Part 1 of 2

Posted by Alex Neir on Tue, October 18, 2011 @ 12:40 PM


What is a Chargeback?

A Chargeback is the process whereby a customer disputes a credit card charge. The chargeback usually occurs after the customer receives their billing statement and does not recognize the charge, is dissatisfied with the quality or service, or did not receive what was guaranteed. Generally, the customer will call the credit card company directly to initiate the chargeback without prior notification to the merchant.

What is the Chargeback process?

The bank has a time limit by which to initiate a chargeback. Within 120 days of the transaction date, the merchant will be advised that the cardholder or bank is claiming a mistake has been made and is attempting to have the charges removed from their statement. The merchant’s account is then debited for the amount of the charge and the merchant must provide evidence that the transaction was valid and in compliance with Visa and MasterCard rules and regulations.

Typical Chargeback justifications:

  • Authorization not obtained for transaction
  • Fraudulent or Duplicate charges
  • Dispute over Quality, Service or Delivery
  • Refund credit not received

5 Steps in the Chargeback Cycle:

  1. Presentment: The Presentment is the date at which the sale or transaction occurs.
  2. First Chargeback: When the customer disputes a charge to their Credit Card Company or bank and the bank responds with a retrieval request to dispute the transaction. The First Chargeback is the point at which the merchant and their bank receive notification from the cardholder’s issuing bank. The merchant has 7 days to rebut, however, the merchants account is debited for the disputed amount until the chargeback is resolved.
  3. Second Presentation or Re-presentment:  The Second Presentment occurs when the merchant’s bank receives supporting documents from the merchant to substantiate the charge and, provided the documentation complies with Visa and MasterCard requirements, the chargeback is remedied. In some cases additional documentation may be required. If the chargeback is cleared then the merchant will be credited back the disputed amount and a letter will be sent to that affect. If the documentation does not satisfy their requirements then the merchant will receive a letter from Visa and MasterCard stating their decision and reasoning. This process can take up to 45 days.
  4. Second Chargeback: If the second presentment is rejected by the cardholder, the issuing bank files a second chargeback. At the time of the Second Chargeback the merchant can dispute the cardholders claim and, if necessary, escalate to Arbitration.
  5. Arbitration: Arbitration is the process the merchant and cardholder/issuing bank resort to when they cannot reach agreement through the chargeback process. All parties have an opportunity to present their case to a Visa and MasterCard analyst. Arbitration cases must be filed with Visa and MasterCard within 45 days of the Second Chargeback being issued. A Visa and MasterCard Arbitration form must be completed, along with a description of the grievance, and copies of all documentation submitted during the chargeback process. The losing party could be liable for fines of up to $500.00.  Additionally, there is a Filing fee of $150.00 and a Review fee of $250.00 paid by the losing party (fees subject to verification). Either party can be assessed a $100.00 fine for each technical violation against the opposing party.

Who Wins?

If you end up in Arbitration, there are several criteria the arbitrator will consider. Split decisions happen when one party offers a reasonable compromise or solution to the disputed charges. Merchants usually get an unfavorable ruling if:

  • The merchant fails to address the issues raised by the cardholder
  • The merchant fails to sufficiently prove that the dispute was unreasonable
  • The merchant fails to present sufficient documentation to support their case
Maxx Merchants offers numerous tools to help prevent and manage chargbacks. If you would like more information please don't hessitate to call out friendly staff at (800)917-8026.

Tags: Credit Card Fraud, Chargeback Defense, Chargebacks

Reducing ChargeBacks with Credit Card Best Practices

Posted by Alex Neir on Thu, September 08, 2011 @ 12:21 PM

Reducing ChargeBacks with Credit Card Best Practices

Chargebacks are an inevitable business dealing when it comes to businesses accepting credit card payments. It almost always consists of a client saying that he/she did not obtain items for which they paid. Reducing chargebacks can save a business time and money by implementing certain guidelines:

  • Businesses should make sure that there is a refund/cancellation policy in place that ensures that the buyer has to agree before buying a product or service.
  • A business should tell their buyers what name to expect to show up on their credit card statements. This could prevent not only this chargeback but also other down the line.
  • Collecting CVV2 numbers during payment will help to reduce chargebacks because it will ensure that the person doing the buying has the actual card there in front of them.
  • The use of an AVS, or, Address Verification service will allow businesses to further authenticate the validity of the cardholder.
  • Businesses should make known to their customers the increased threat of fraud from developing nations. These nations and their practices are the cause of most chargebacks being contested.
  • Businesses should also provide an excellent form of buyer support. Almost all disputed charges will be because of a poor, uneducated customer encounter. If the business supplies their consumers with high quality expertise and value, then the probabilities and risks of having a charge being disputed minimizes greatly.

Unless businesses continue to provide education and support to their consumers, charge-offs will continue to rise. The only deterrence is to provide an excellent source of customer service and ensure that the consumers themselves are prepared going into any purchase they make.

Tags: High Risk Merchant Account, Merchant Account Underwriting, Chargebacks

High risk merchant account - explained

Posted by Alex Neir on Mon, June 06, 2011 @ 03:37 PM
High Risk Merchant Account

High risk merchant account - explained

So what is it that causes a merchant account to be considered high risk? A common question and while the answer may seems straight forward it’s actually a little more involved than you may think. Every merchant service provider will have underwriters with slightly different guidelines for business classification. That being said below is a list of the most common criteria that is evaluated to determine the “riskiness” of a business. 

Level of Chargebacks

A chargeback is when a customer calls their credit card issuing bank to complain about a charge on their statement. The level of chargeback’s for the business must be either, less than 1% of the total sales for the month and/or less that 100 chargeback occurrences. If either level is breached the business will be considered high risk.

Instances of Credit Card Fraud

Certain business types and industries have a higher level of fraud and fraud attempts. Industries such as on-line betting have high fraud instances and are classified as high risk. Additionally, it’s possible for a business to be approved as a low risk business only to have there account re-classified later if fraud attempts are not managed according to the guidelines outlined in the merchant service contract.   

Product or Service Paid in Advance

If your business provides future dated products or services in which the customer must pay in advance, this business model is usually classified as high risk. It has been documented that this business model increases the occurrence of chargeback’s and therefore creates more risk for the processor. Air travel, subscription services and membership services typically fall into this category.

Target Market Location

Any business with a target market located outside of the United States will be considered high risk. When processing international credit card payments it is difficult for a domestic merchant account to perform an address lookup for the credit card being charged. The address lookup is a basic fraud prevention measure. Without the ability to perform address lookups the business account will be classified as high risk.  

Sales Acquisition

The manner in which a business acquires sales and leads will be considered when classifying the business. Businesses that use aggressive sales tactics, over exaggerate results, use outbound telemarketing, multi-level marketing or fulfillment through a third party will be considered high risk.

Sales Transaction

Merchant account classifications will always take into consideration how the business intends to accept credit cards. Any business that is not swiping the customer’s credit card through a terminal will undergo more scrutiny. Additionally, any home based internet business will be classified as high risk.

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Tags: High Risk Merchant Account, Merchant Account Underwriting, Chargebacks

How long should a business keep credit card receipts?

Posted by Alex Neir on Tue, April 26, 2011 @ 02:48 PM
Credit Card Receipts

How long should a business keep credit card receipts?

This is a very common question most businesses forget to ask once their credit card processing account has been approved and set up. Retaining credit card receipts for too long can become cumbersome and difficult. Retaining credit card receipts for too short a period can expose the business to liability.

The main reason your business needs to hold onto the transaction receipt signed by the customer is to fight chargebacks. A chargeback is the process of a customer disputing a charge that shows up on their credit card statement. There are many reasons customers chargeback against a business. Some reasons include; incorrect products or service received, fraud, unrecognized charge, etc. When a chargeback is initiated against your business the only defense is a signed copy of the sales receipt which includes the customer’s signature. The bank will use the credit card receipt to match the signature they have on file.  

Another important aspect of retaining credit card receipts is for tax purposes. Only your accountant can advise you on the retention period relative to taxes but typically 7 to 10 years is sufficient.

The statute of limitations pertaining to customer initiated chargebacks is 18 months from the time the transaction appears on the statements. So, for chargeback purposes it is important to keep you business credit card receipts for 18 month.

Tags: Chargeback Defense, Credit Card Receipts, Chargebacks

Merchant account closed, what can I do?

Posted by Alex Neir on Tue, March 08, 2011 @ 12:36 PM
Merchant Account Closed

Merchant account closed, what can I do?

Your merchant account has been closed and you are wondering what to do next? The good news – you always have options.

First it’s important to know the reason your account has been closed. If you don’t know, call your merchant service provider and get as much information as you can with regard to the closure. Depending on the reason for the closure, I have some suggestions below.

Merchant Account Closed Due to Inactivity

This is a simple fix. Just explain to your current processor the reason for the inactivity and ask that they reinstate the account. If the account has been closed for less than a month you can usually turn the account back on without any additional paperwork. If the account has been closed for a longer period, you may have to submit a new application. It will depend on the provider.

Merchant Account Closed due to Rejected Fees

This is a tricky one as it’s a slippery slope. If the month end fees are rejected you typically have one month to pay the back fees. If the account is not current for the second month, the account is typically suspended and then closed as some point in the future. Depending on the length of time the account is delinquent and the efforts that are made to catch up, determine the difficulty of resuming the account. The worst thing to do is to ignore the past due balance. Depending on the merchant service provider, they could place your account on the TMF (Terminated Merchant File), which makes it very difficult to get another account.

Merchant Account Closed due to Excessive Chargbacks

This is the most sever account closure. All of the liability associated with a merchant account stems from chargeback risk. The chargeback ratio determines the acceptable amount of chargebacks for any given merchant and is usually 1% or less. The chargeback ratio is determined by dividing the total amount charged back by the total volume processed for the month. If your account has been closed due to excessive chargebacks your options are very limited.

  1. Determine the reason for the excessive chargebacks and write a detailed plan on how you will reduce them.
  2. Show visible proof that you are implementing the items listed in your detailed plan to reduce chargebacks. i.e. updating your website with clear terms and conditions, adding your customer service number as the descriptor on the customer bill etc.
  3. Ask your current provider what steps you can take to reinstate the account.
  4. Identify other providers that are willing to accept the account.
  5. Begin to research an off shore account.

Merchant account closure can result in substantial losses for the business if you are not able to offer the convenience of credit card payment to your customers. It is always a good idea to give your merchant account the same attention you would any other business asset.

Tags: Merchant Account Closed, Chargebacks

What are chargebacks?

Posted by Alex Neir on Thu, February 24, 2011 @ 01:40 PM

What are chargebacks?

A chargeback is the process in which a customer contacts their credit card issuing bank to dispute a charge on their credit card bill. All credit card holding patrons have the right to initiate a chargeback as it is part of the contract between the issuer and card holder. The chargeback process was established to protect card holders from the liability associated with stolen credit cards.

The chargeback process begins with the customer contacting their bank to dispute a charge. A dispute may arise from any number for reasons, as few are - an unknown or unauthorized charge, product delivered did not match what was advertised, the list goes on and on. Once a chargeback has been opened with  the card issuing bank an investigation take place. The bank will call the merchant involved with the charge to determine the nature of the issue. In the case where the charge is disputed due to an unauthorized charge the merchant will be given the opportunity to prove that the charge was authorized. Typically the merchant’s best defense is a signed sales receipt or credit card authorization for the transaction. If the signature on the sale receipt or authorization matches the signature on file with the bank the merchant will usually win the dispute.

Card holders or customers have up to 18 months from the time the charge shows up on their statement to chargeback the transaction. So, it is VERY important for merchants to hold on to their sales receipts and authorizations for 18 month from the time of the sale.

Tags: Merchant Account Education, Chargeback Defense, Chargebacks