What Are Chargebacks and
What Do They Mean for Your Business?

Chargebacks are a form of consumer protection for credit card holders, introduced as part of The Fair Credit Billing Act of 1974.

Essentially, a chargeback voids a card transaction, withdrawing funds that were previously deposited into the merchant’s bank account and applying a credit to the cardholder. Chargebacks are normally used to dispute a card transaction and secure a refund for the cardholder.

The cardholder, rather than contacting the business for a refund, may go above the merchant’s head and asks the bank to forcibly remove funds from the business’s bank account. If the bank feels the cardholder’s request is valid, the funds will be removed from the merchant’s account and returned to the cardholder.

What does the Chargeback process look like?

  1. The cardholder initiates a chargeback
  2. The issuer takes action
  3. The acquirer reviews the chargeback and takes action
  4. The merchant reviews the chargeback and takes action
  5. The acquirer re-presents the chargeback
  6. The issuer reviews the compelling evidence and takes action

So lets take a look at that in greater detail.

  1. The cardholder initiates a chargeback
  2. An unhappy cardholder contacts their card issuer (bank) and asks for a refund. The issuer reviews the chargeback request. Each chargeback is accompanied by a reason code. These reason codes offer an explanation as to why the consumer is disputing the transaction (for example, “goods or services not as described”). Each code has its own set of rules (filing time limits, necessary documentation, etc.). The issuer will check the cardholder’s chargeback claim, making sure all the regulations have been addressed.

  3. The issuer takes action.
  4. If the cardholder doesn’t have a valid claim, the chargeback request will be voided. However, if the cardholder has a valid claim, the funds will be removed from the merchant’s bank account and credited to the cardholder’s. Notification of the chargeback will be sent to the acquirer/merchant account provider.

  5. The acquirer reviews the chargeback and takes action.
  6. The card schemes such as Visa and Mastercard have created various chargeback rights, to enable merchants to have the right to dispute an illegitimate chargeback. This allows the merchant can try to regain funds that were removed, if they can evidence that the initial claim was false or fraudulent. If the acquirer has access to the compelling evidence needed to dispute the chargeback, the bank will act on the merchant’s behalf. Otherwise, the acquirer will pass the chargeback along to the merchant.

  7. The merchant reviews the chargeback and takes action.
  8. If the chargeback is justified, the merchant may be forced to accept the losses. However, if the business has sufficient compelling evidence (documentation to prove the chargeback is invalid), the merchant can re-present the chargeback for the issuer’s review.

  9. The acquirer re-presents the chargeback.
  10. The acquirer disputes the chargeback on behalf of the merchant.

  11. The issuer reviews the compelling evidence and takes action.
  12. If the merchant’s compelling evidence successfully disproves the cardholder’s claim, the transaction will be credited to the cardholder’s account again. If the merchant’s compelling evidence doesn’t refute the cardholder’s claim, the chargeback stands. The transaction amount is permanently removed from the merchant’s bank account and applied to the cardholders account.

How does our innovation help combat chargebacks?

Our cloud​-based technology does not require any additional hardware or amendments to existing telephony or​network set up and is Acquirer and Payment gateway agnostic. Totally eliminating the need for capital expenditure, SOTpay can support businesses of all shapes and sizes in any sector.​

SOTpay​ eliminates the risk of fraud related chargebacks for businesses, by authenticating MOTO and ​Omni channel CNP transactions and processes the payment in a PCI compliant manner, converting a risky ‘non​-secure’ transaction into a ‘secure, authenticated, compliant’​transaction in the eyes of the acquiring partner, the merchant can see significant savings in their​Merchant​ Service Charge's.​ We have seen businesses save in excess of £40,000 per annum,​following the deployment of SOTpay.

SOTpay enables you to send out an electronic payment request in real time, via email, SMS, web chat or electronic invoices.

The flexibility of the SOTpay technology enables the merchant to accept secure and compliant​ transactions across numerous channels, boosting business by allowing cardholders to complete​ transactions in their desired channel of engagement. For example, if someone is engaging with the​ business on Facebook, SOTpay allows the business to take payment within the Facebook Messenger​ environment.

By preventing cardholder data in its entirety from entering the merchant environment, SOTpay makes achieving and​maintaining PCI DSS compliance easier and more manageable for your business. With liability for fraud related chargebacks eliminated the merchant can also deliver to an alternative​ delivery address, instead of just to the registered cardholder’s address.

As a disruptive payment technology, the PCI SSC updated their Global ‘Protecting Telephone Payments’​ guidelines to include our innovative approach, which gave us tremendous credibility within the​ acquiring industry. We have subsequently become partners to some of the largest payment​ organisations in the world, helping to protect and support​ their merchants against the challenges that business face.

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