Description: This document is meant to assist Shift4 merchants in navigating through the Chargeback Dispute process with answers to some of the most frequently asked questions.
Working with disputes quite simply has never been a straightforward process and can be quite frustrating for merchants. No merchant or business entity is immune to receiving transaction disputes, which quite commonly come in the form of chargebacks and retrieval requests.
While some merchants may be able to operate their businesses for long spans of time before encountering a dispute, they should be well-informed and prepared for when they occur.
What is a Chargeback?
In layman’s terms, a chargeback is a bank-initiated refund for a purchase made with a credit card. The main difference between a chargeback and a refund is that a refund doesn’t get the bank involved in returning the money.
Generally, a chargeback should only occur when a cardholder disputes a charge after noticing an unrecognizable transaction.
The original idea behind chargebacks was to provide protection to honest customers experiencing actual fraud. But unfortunately, not every chargeback is justified and legitimate. As a result of the dynamic growth of online businesses, merchants now see more fraud attempts related to chargebacks.
Since consumers have become more and more understanding about how chargebacks work, some dishonest customers have learned to abuse the system and use chargebacks even when they’re not justified. Such incidents are called friendly fraud and happen when a customer falsely disputes legitimate transactions.
Unfortunately, friendly fraud is far from a small-scale problem. According to Chargebacks911, friendly fraud is the top source of fraud attacks affecting merchants.
What Is a Pre-Arbitration Case?
- Pre-arbitration refers to a phase of the dispute process that can be initiated when the issuer continues to dispute a transaction charge.
- Issuer initiation of pre-arbitration would typically follow their receipt of a chargeback representment that was previously submitted to the issuer on the merchant’s behalf.
- While receipt of a pre-arbitration request does not initially result in a financial impact to the merchant, responding to these requests is extremely important, as the issuer could escalate the dispute to arbitration with the card network if a response was not received.
- If the card network, upon their arbitration, rules against the merchant, it would result in not just a re-debit of the amount of the dispute to the merchant’s account, but additional fees imposed by the card network would also be passed on. These fees can be quite costly (up to $500 in filing/ruling fees).
What Is a Retrieval Request?
Sometimes referred to as a “soft chargeback,” a retrieval request can be initiated by the cardholder’s issuing bank as a request for additional details, such as a copy of a sales receipt for a transaction that is being questioned.
Responding with additional details about the transaction may provide clarity for the cardholder and their issuing bank and, in many instances, will put an end to the dispute right then and there. But in other instances, it may substantiate the issuer’s initiation of a chargeback.
While a retrieval request is non-financial in nature, it’s extremely important that merchants respond in a timely fashion to these requests. The issuing bank could initiate a chargeback for the simple reason that the merchant never responded, which cannot be represented (non-defensible).
Are There Fees Associated with Disputes?
Yes. In addition to the disputed amount that can be debited from a merchant’s account, there also may be a fee that’s assessed, which covers Shift4 costs for processing and handling the dispute.Dispute fees are typically assessed when a dispute is initially received. Such is the case with chargebacks, prearbitration cases, and retrieval requests.
What is Shift4’s Role in the Chargeback Process?
Shift4 aids our merchant clients in how to best respond to chargebacks and with other phases of the dispute process. Additionally, we help educate our merchants on how to avoid and minimize the occurrence of disputes.Who is Responsible for Responding to Disputes, Chargebacks, and Retrieval Requests?
The owner of the merchant account, or anyone acting as such, is responsible for addressing all disputes, including chargebacks, pre-arbitration cases, and retrieval requests.
Merchants receive automatic notifications when disputes are received. Using an online portal, they can easily upload documentation for each disputed case and can review the details for any and all cases worked or outstanding.
What Happens When a Merchant Receives a Dispute, such as a Chargeback?
The dispute case is uploaded to Shift4’s systems, including our online portal for merchant access.
The merchant is then sent a dispute notification, which explains the nature of the cardholder’s and issuer’s concerns.
The merchant’s account is debited for the amount of the dispute plus any associated fees.
The merchant needs to follow the instructions outlined within the dispute notification as it relates to their response and responsibilities for the handling of the dispute.
What is MerLink?
MerLink is an online dispute portal that merchants may use and access for viewing and responding to their dispute cases, which include chargebacks, pre-arbitration requests, and retrieval requests.
Merchants using MerLink can upload documents that support the validity of disputed transactions. These documents can then be reviewed and approved by the Chargeback team for transmission of a rebuttal back to the issuing bank and their cardholder.
The MerLink system will notify merchants during various stages of the dispute process, letting them know whether they have won or lost a dispute or whether additional information is needed for sending a rebuttal back to the issuing bank.
The Life of a Chargeback
Let’s walk through the various steps and interactions that typically take place in the life of a chargeback, which is the most common cycle of the dispute process.
Dispute Life Cycle Terminology to Remember
- The Cardholder who purchased goods and/or services from a merchant business begins the dispute process by contacting his or her card issuing bank.
- The Card Issuer, if merited, will then initiate a chargeback dispute, submitting it to the appropriate Card Network.
- The Card Network will then send the dispute to the merchant’s acquiring institution, the Card Acquirer, for routing to the merchant.
- The Card Acquirer (Shift4) then notifies the Merchant of the disputed transaction via various methods, which can include the MerLink online dispute portal, email, fax, or mail.
- The Merchant responds to the dispute by providing the Card Acquirer with documents supporting the validity of the disputed transaction.
- The Card Acquirer reviews the Merchants response/documentation and, if sufficient, submits a rebuttal in the form of a representment back to the associated Card Network.
- The Card Network will then forward the representment to the Card Issuer for their review of the documentation provided by the Card Acquirer/Merchant.
- The Card Issuer will reach out to their Cardholder and discuss the dispute based on the information provided by the Merchant.
- The Cardholder will either accept the events thus far and accept the credit card charge or they may wish to continue the dispute. With that said, the Card Issuer will ultimately decide as to whether to continue the dispute process via pre-arbitration.
Preventing Chargebacks Is the Best Defense
While chargebacks/disputes can be reversed, the process can be cumbersome and lengthy when you look at the time required for researching and compiling supporting documentation.
Following best business practices, being proactive can prevent and reduce the occurrence of chargebacks/disputes, which is time and effort well spent.
Effective Ways to Reduce Chargebacks
1. Make Sure Your Website Is Secure
Fraudsters search for every loophole and bug they can exploit in outdated software. So, updating your website regularly and avoiding clerical or technical errors should be the very first step you take in avoiding chargebacks.
Encrypt the data on your site, consider using the Address Verification Service (AVS), and collect CVV/CVC with each transaction.
2. Provide Relevant Product Descriptions
An incomplete product description (or one that doesn’t match the product received) results in a higher chance that the customer will file a chargeback. The more details you provide, the better.
It’s also important to remove items from your website when they’re no longer available for purchase. This will help to prevent confusion.
The same goes for billing descriptors. Chargebacks can sometimes occur simply because of misunderstanding. So, ensure your transaction descriptors match your business name to prevent chargebacks from customers who don’t recognize your transactions on their account.
Adding contact information to your transaction descriptors — an email address or phone number — will also work in your favor. With this information easily available, customers will be more likely to contact you first rather than the bank.
3. Work With a Reliable Payment Provider
Ensure that the payment processor you work with provides card authorization and capture, sophisticated and highly effective anti-fraud tools with machine learning, AI-based solutions, and an efficient chargeback disputing mechanism.
4. Create Clear Refund and Return Policies
Make your refund and return policies simple and easy to understand and make them visible to website users.
When a customer isn’t satisfied with an ordered product, offer a refund. Provide detailed information on how to return the item and how to request that refund. Such an approach will help you prevent chargebacks and avoid negative reviews.
Return management is less expensive in the long run and comes with less hassle than dealing with chargebacks.
5. Use 3D Secure
3D Secure protocol is an extra security layer that shifts the liability from the merchant to the issuing bank. If the customer confirms the transaction with the code, the issuer takes responsibility and covers the potential costs related to chargebacks. The benefits for merchants are indisputable — enhanced security and fraud prevention, fewer disputed transactions, liability shift, and PCI compliance — not to mention increased customer satisfaction.
6. Be Clear About Shipping Details
Being precise is essential when it comes to shipping costs and deadlines. In the case of delays, inform the customer immediately and offer an alternative solution if possible.
Provide shipment tracking information to keep customers updated about where their package is and when it will be delivered.
People tend to be impatient and waiting too long for ordered items may lead to a transaction dispute, so consider offering expedited shipping as an option.
7. Monitor Product Quality
Ensure that all your products and services are of the highest possible quality.
This will result in customers who are pleased when they receive the products they’ve ordered and will prevent chargebacks related to customer satisfaction.
8. Provide Accessible Customer Service
Make it easy for customers to find your contact information and reach you directly if something needs to be fixed with their order.
If possible, make your customer service available 24/7. If that’s not an option, clearly state your business’ support hours on your website and inform your customers about an approximate time frame for addressing their inquiries.
Always deal with customers’ issues promptly and be as responsive as possible. When your customers know the status of their inquiries, they are less likely to file a chargeback.
Open and direct customer communication can be one of the best ways to reduce chargebacks.
9. Monitor Orders
It’s essential that you keep a close eye on your orders. Keeping details of past fraudulent activities and monitoring incoming orders for similar behaviors can help you quickly recognize potential dodgy patterns and prevent your business from money loss.
Also, keeping detailed records of all transactions may come in handy when gathering evidence and valid proof to dispute future chargebacks.
Watch Your Chargeback Ratio
It’s important to be aware of your business’ chargeback ratio. If your ratio is higher than 0.9% and you’re unable to lower it within the recovery time given by a credit card issuing company, your business may be classified as a high-risk merchant, which will incur higher processing fees. In the worst case scenario, too many chargebacks can lead to your merchant account being frozen or terminated.
Taking the steps we outlined above can help you reduce the number of chargebacks and reduce your chargeback ratio. For more detailed information regarding chargebacks — the representment process in particular.
FAQs
When will I be notified of a chargeback and when are funds removed from my checking account?
The Chargeback Processing Center will mail a chargeback notification when the debit is transmitted to your bank. This debit can take 2-3 business days to reach your bank account. Typically, you will receive a notification at the same time your checking account is debited if not using an Online IMS Service. To ensure you receive the most time possible to respond to your case, ensure that your account mailing address is up to date.
Why is there a reserve on my account?
If the Chargeback Processing Center encounters difficulty at ANY point when deducting the chargeback amount from your bank account, etc., it is the processor’s obligation to remedy any amount not collected. In most cases, a reserve is set up for security purposes to protect the Merchant Processor from any loss due to chargebacks. The reserve is held in case of default by a merchant. (Further details are located in your Merchant Account Agreement and Terms & Conditions).
What is arbitration?
Arbitration occurs when a disputed transaction cannot be settled through the chargeback process. The deciding body is the relevant card association. You cover the cost for all fees, penalties and the transaction value where the case is not successfully defended.
What is an Inadequate Descriptor Fee?
This is charged when the retrieval request or chargeback is responded to with inadequate information and descriptors that don’t match what you submit with the retrieval request. This is entirely in the hands of the issuing bank (Visa).
How does a merchant respond to a chargeback?
Merchants can use our MerLink online dispute portal at merlinkdrs.com to both review and respond to disputes (submitting a rebuttal). Responses can also be submitted via merlinkresponse.com, regardless of whether or not the merchant has been granted access to the online dispute portal.
In addition, and if preferred, responses can also be emailed to chargeback@shift4.com or faxed to 706.644.5210.
How do I gain access to the MerLink online dispute portal?
Merchants may request MerLink access by sending an email to Shift4 at chargeback@shift4.com. Be sure to include both first and last names of the user, individual email addresses, and associated Merchant IDs (MIDs).
What do I need to include with my chargeback response?
Primarily, the supporting documentation you will need to provide will be dictated by the type of dispute based on the chargeback reason code.
In addition, it is recommended that you read all dispute notification details, including information provided by the issuing bank, in order to address all of the cardholder’s concerns and to provide an accurate and complete response with your submitted documentation.
Please note that if the dispute were to escalate to the pre-arbitration phase, you will not be allowed to provide additional documentation supporting your position, so it is important to provide all the required information with your initial response.
For a set of guidelines that outline required response documentation for each of the card network dispute reason codes, you can send a request by email to chargeback@shift4.com or you can call the Shift4 Dispute team at 800.963.1701.
Why am I given a limited time to respond?
Each card network (e.g., Visa, Mastercard, etc.) provides specific timeframes for responding to disputes, which are used to calculate the date for when merchants must submit their responses.
We encourage all merchants to review and respond to chargebacks as soon as they are received to allow for any additional time for communication between you and the dispute team to help ensure that all required documentation has been provided to best defend against disputes.
What is the maximum timeframe allowed for chargeback initiation?
Cardholder/issuing bank can initiate a chargeback up to 120 days from the original transaction date. However, depending on services being rendered, an issuer has a maximum of 540 days to initiate a dispute on behalf of their cardholder.
Can a chargeback case be re-opened?
Request to have a chargeback reopened can be submitted, but in most cases the issuing bank/card networks do not accept a response after the case has been closed per card network’s (e.g., Visa, Mastercard, etc.) required response timeframes.
Can chargebacks be removed from my processing history?
Chargebacks cannot be removed as history from your processing account. For that reason, we encourage merchants to conduct business per best practices to help prevent the occurrence of chargebacks/retrievals.
Why am I debited for a chargeback before I have a chance to respond?
When a chargeback is received, it equates to an automatic debit by the Issuing bank. But you are still provided with the ability to rebut the chargeback and possibly have the funds from the dispute reversed.
Why am I being assessed a chargeback fee when my previous processors did not?
You were most likely previously charged a chargeback fee as part of a bundled cost and not as a separate charge. Other processors may include chargeback fees with alternate charges, such as credit card fees, licensing fees, or other miscellaneous fees.
For a reversed chargeback, will the chargeback fee be reimbursed?
No, chargeback fees are not reimbursed. Since a chargeback is a forced reversal of the transaction by the issuing bank/cardholder, and because the bank and the credit network are involved, these fees are assessed to cover associated processing costs.
Does Shift4 make available chargeback protection?
No, we do not offer a chargeback protection program, but we do assist our merchants by offering guidance and tools on how to keep chargebacks at a minimum.
What is EMV?
EMV stands for Europay, MasterCard®, and Visa® and refers to the increased security of payment card transactions using a chip embedded in credit, debit, and prepaid cards.
Use of EMV chips in a card transaction is more secure than swiped transactions. They help reduce fraud-based chargebacks while offering merchants reduced liability for better chargeback protection. The use of EMV should be encouraged versus swipe and certainly instead of key entering transactions. The use of EMV versus swiped in the eyes of the card associations also protects merchants through an enhanced liability shift when they use EMV-compliant terminals and processing.
I have an EMV-enabled terminal, so why am I still getting chargebacks?
Any sales you process could be disputed for a variety of reasons. While chip terminals lower the chances of receiving fraud-related chargebacks, chip-based technology will not prevent all chargebacks from occurring.
What is Chip & PIN?
The term “chip & PIN” refers to the microchip found in a payment card that can be used in conjunction with a personal identification number (PIN) known only by the cardholder in order to validate the use of the card being presented.
What is the difference between PIN-preferred and Signature preferred cards and the impact to chargebacks?
In Europe, the more common type of card is PIN preferred (entry of a PIN). In the U.S., most banks issue signature preferred cards (signature provided).
As an example, if a person from Europe comes to the U.S. and conducts a purchase with a PIN-preferred card, and they dispute it, a chargeback is hard to contest. That’s because most POS systems in the U.S. are configured for signature preferred and won’t prompt for a PIN.
Also, a U.S. citizen might ask their issuing bank to provide them with a PIN-preferred card if they are going abroad and want to avoid any issues when they use their U.S.-issued signature preferred card. Upon returning to the U.S., the customer could make a domestic purchase and dispute a charge using their PIN preferred card and we have the same situation.
If a card can’t be dipped or swiped when conducting a purchase, can I manually enter the card information?
You can, but there are inherent risks if you manually enter/key card details such as the case with telephone orders as an example. In these instances, you have less protection from fraud/unauthorized chargebacks, as you can no longer prove that the card was (1) present at the time of purchase and (2) that the true owner of the card initiated the purchase.
Your best protection is to insert the card for chip use, followed by swiping, and as a last resort, manually keying the card details.
What’s the chargeback risk when customers tap their cards?
Tapping a card when conducting a purchase uses near-field communications (NFC) for contactless card use. And because contactless cards are generally EMV cards, they utilize the same encryption technology, which helps prevent the creation of counterfeit cards.
But, since contactless cards don’t necessarily require the entry of a PIN, an unauthorized person could make a purchase if they came into possession of the card.
All that said, tapping, just like dipping, is much safer than swiping.
When I receive chargebacks for purchases involving currency conversion, why is the dispute amount often greater than the amount of the original transaction?
When a cardholder initiates a chargeback, currency conversion is applied based on the conversion rate when the chargeback is performed and not the conversion rate used at the time of the original purchase.
How do I prevent chargebacks where tips were involved?
Under certain circumstances, if the gratuity exceeds 20% (Mastercard) or 25% (Visa) of the authorized amount and the merchant does not obtain an additional authorization, it may result in a chargeback. Per card brand regulations, a second authorization is required if the gratuity is over the variance allowed.
Does anyone cover bounced check fees because this chargeback was taken from my bank account?
Per the Shift4 Merchant Account Agreement and the Terms & Conditions, you agree to keep sufficient funds in your bank to cover any chargebacks.
Can a credit card processor protect me from a chargeback?
It is extremely limited as to what a processor can do to protect a merchant from chargebacks. Harbortouch does offer a Chargeback Support team that can explain chargeback case documents and help you respond to the case. However, the cardholder does hold certain liberties in questioning and disputing transactions made to their credit card account per the card association. Please contact chargeback@shift4.com for additional information.
I was told that an authorization guaranteed payment. Is this the case?
An authorization will only verify that a credit card account is active and that there are funds available. However, there are many different reason codes as to why a cardholder or their issuing bank initiates a chargeback.
Get the cardholder's signature, and have them sign your cancellation or return policy on all orders. It's also important to manage the expectations with your customer up-front. Document your efforts and work with your customer to resolve issues.
How long do I have to respond to a chargeback?
The response by dates are always included on the notices, however, generally, it is 10 days from the notice date.
Is there a faster way to get chargeback notices?
Yes, if the merchant provides a fax #, it can be added to their account, and notices would be faxed instead of mailed. However, if the fax fails then it would be mailed.
Can you email me chargeback notices instead of mailing?
Yes. A merchant can provide an email address to receive email notifications.
Why do I see a debit but was not notified?
Debits for chargebacks are sent out same-day notices are mailed/faxed. If a merchant is set up with mail notification, the merchant will always see the debit prior to getting the letter as it takes a couple of days to get to them.
Why did I receive a chargeback due to getting authorization for part of the amount on a card, but in Lighthouse Transaction Manager, I was able to settle the full amount, in TSYS only?
Note: This is specific to the old TSYS code.
This is displayed in Citadel as VISAVLL.
The new TSYS code for EMV (displayed as TSYSVLL) fully supports Partial Authorization.
Prior to Shift4's recent recertification for EMV with TSYS, TSYS did not have a flag in their system for us to programmatically tell them that we do or do not support Partial Authorization. As a result, even if we do not send an indicator requesting a Partial Authorization, TSYS may return a Partial Authorization result. As Shift4 is not certified for Partial Authorization on the older TSYS code, we are unable to parse out the Partial Authorization details and send them to the interface; thus, the transaction is treated as if the full amount were authorized. Unfortunately, we cannot prevent this behavior on the old TSYS platform.
Additional Information:
On the updated TSYS code, if Shift4 does not receive the Partial Authorization flag from the interface, we will not send it to TSYS, and transactions with insufficient funds should Decline as expected. If we do receive the flag (the Interface must be certified to handle this functionality), we will send this to TSYS and will return the correct authorized value to the interface so they may prompt for the remaining amount.
Note: You may incur setup fees for migrating to the new code.
What is Shift4's role in our merchants facing chargeback disputes with their customers?
For gateway merchants, Shift4's role must remain neutral during such an event. What this means is that we are in no way involved in delegating the actions of our merchants toward disputing any chargebacks. However, we are able to assist with researching transaction activity and the history of a charge in Lighthouse Transaction Manager. Refer to Authorization and Access Tokens Defined on additional points for merchants to consider when facing and disputing chargebacks.
We’re Here to Help
At Shift4, we want to ensure that all our merchant clients are equipped to handle the processing of disputes and their responses in a way that best ensures a favorable outcome and reduces merchant risk.
We’re available to answer all questions as they relate to the dispute process as well as assist you with specific types and individual dispute cases you may have received.
Feel free to contact Shift4’s Chargeback department during normal business hours at 800.963.1701. We can be reached Monday through Friday from 9:00 a.m. - 6:00 p.m. ET.
We can also be reached by email to address any of your questions or dispute processing needs at chargeback@shift4.com.
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