Credit Card Chargebacks

Sunday, January 22, 2006

Credit Card Chargebacks - A worst Nightmare for Internet Merchants

Credit card chargebacks pose a significant threat for online internet merchants. Chargebacks can also be your nightmare. It can also shut down your business.

A Chargeback is nothing but reversal of credit card transaction. Reversal means you have to give back the original fee + transaction fee + penalty fee (or chargeback fee) + loss of your service/product. This is because credit card thieves enter somebody else credit card information (often stolen or hacked) when ordering your product. They will and they can successfully bypass the Fraud Screening System to order your product. This will cause a charge in real cardholders bank statment. The real card holder had not ordered any product/service will dispute the charge to his bank. His bank will contact the credit card company namely VISA, MASTERCARD, AMEX etc.. for reversal of transaction. As a vendor you can still fight against credit card companies, but it will cost you time, money and the credit card company will end up supporting their customer. Let us analyze John's scenario ...

John was a very happy man when his digital products was ordered by 5 customers in a single day each of $200. Days passed by and after 40 days, John received email from his third-party credit card processor saying that he received 3 chargebacks, reason FRAUD - CARD ABSENT ENVIRONEMENT. What a blow ! Just now received the money transferred to his bank account from the third party processor.

The losses are ...

1. Original fee: $200 x 3 = $600
2. Transaction fee : 5% of $200) x 3 = $303.
Penalty fee: $25 x 3 = $75
TOTAL: $705
Now this $705, John has to payback. Had he already shipped a tangible product, he has to forget the goods.

The thief successfully bypassed ...

1. Address Verification System AVS
2. CVC2/CVV2 CC Verification number.

The WORST of all....

1. The third party credit processor, suspended his account and he can no longer will be able to process credit cards. The reason given by third party credit card processor was TOO MANY REFUNDS AND CHARGEBACKS.

2. Because of suspension of his merchant account, his next month $1000 payout was blocked by cc processor and only will be paid after 180 days (6 months).

3. John's business was put on VISA/MASTERCARD TERMINATED MERCHANTS MATCH FILE (TMF/MATCH), which means he wont be able to apply for any other merchant account offered by other providers, atleast for several years. This is worst part of chargeback.
See the nightmare! Not just chargebacks, too many refunds can also lead to your suspension of merchant account.

Still more bad news

1. Address Verification System AVS will work only inside United States. No worldwide AVS been developed yet.

2. The current chargeback rate is 11%, which is NEVER low. It is IMPOSSIBLE to stop chargebacks.

Reasons of Chargeback

1. The card-holder had not placed his order. Possible use of fraud card.

2. Card-holder does not recognize the charge. This is often caused by third party merchant accounts. For example, the online vendor name does not appear on statement, rather the name of third pary credit card processor's name appears. This often makes them panic and they will dispute the charge. You can sucessfully tackle this problem, by informing the buyer that so and so name will appear on the card statement, before he orders your product.

3. If you dont give them refund, they will dispute for the reversal of transaction. Complete description and details of your products/services including refund policies must be accurate in your website.

4. Tangible goods not shipped before specified date.

5. Goods received are defective and the merchant not trustworthy to buyers.

Helpful Tips for Avoiding and Reducing Chargebacks.

From my experience as online seller, there are intuitive ways to get rid of chargebacks. I have always found some peculiar or bizarre credit card orders, that had some strange properties somekind or other. Remember the fight against chargebacks can only be faught by means of 'Intuitive probabalistic reasoning'.

Rule of Thumb:

1. Always refund the transaction, if you suspect the transaction is of fraudulent one. A refund would be a wise decision than getting charged back.
2. Never hesitate to get CREDIT CARD AUTHORISATION FORM signed by the customer, if you suspect.

1. A customer ordering large number of products at a single go. This would be more than in a normal scenario. Crooks with stolen credit cards will always have one thing in their mind : "To empty the money in the credit card". They are unaware the amount of money in their stolen card.

2. The shipping address will be different from the credit card address. Most often crooks want the goods delivered to some other anonymous country addresses that are other than card holders address. This is a VERY high risk. You might need to confirm with buyer regarding this and Merchants MUST obtain CREDIT CARD AUTHORISATION form signed by the card holder before you ship goods.

3. Repeated failure of card authorisation. Thieves since they dont know the exact credit card holders name and billing address, they will repeatedly try various kinds of combinations to bypass the fraud screening system.

4. Never trust orders with free email addresses from YAHOO, HOTMAIL etc. These free email addresses are UNTRACEABLE and definitely these crooks want to hide using them.
Tip: There are so many free email providers in internet. how do you differentiate a free email address from paid email address? Answer. Its that simple. Just you will notice at bottom of a free email address, ads will be served. But in paid email addresses no ads will be served.

5. The IP Address of the order dont match credit card holders country. Say if somebody orders your goods from Indonesia using Credit card address listed as U.S.A then this is definite fraud case. Always include a separate application form on your website for the customer to fill up, especially if you are using third party merchant account. You can find out the I.P address country location here:

6. Customer had typed with spelling mistakes or with small letters which would be something not normal.

7. Thieves claim that they dont have a credit card, and might convince you to use his friend's credit card. Although there are genuine shoppers but in that case you have to get CARD AUTHORISATION FORM signed by cardholder.

8. Talk to other merchants and discuss your experiences against credit card fraud. Join our forum and may be your experiences could help others. On the other hand, there will be somebody sharing their views with you as well.

9. Post a warning in your website, before a customer places their order like this..
" Credit card frauds are considered as felony under federal law. All the transaction information will be recorded. Fraudsters will be traced and prosecuted in case of fraudulent activity. Please do not use free email addresses like YAHOO, HOTMAIL etc.. as these addresses are untraceable. A free email address is your email address that you dont pay for. "
A warning sign will definitely cause some effect on the crooks. Neverthless, preventing sign is still a cure.

If you want to void a chargeback or get the chargeback reversed then it is mandatory to get card authorisation form completed and signed by card holder. This is the procedure recommended and advised by many credit card companies like Visa, Mastercard, Amex etc. Because even if you get a chargeback, we can fight with credit card companies for voiding chargeback. This is the only weapon of defense we have in our merchants side. The card holders signature on the form is the only way with us to fight chargeback against card holder and the credit card company. Never hesitate to get Card Authorisation Form signed from card holder, in case you suspect of transactions. It is always recommended that to get authorisation form signed by cardholder for any transaction worth $500 or more. Reversing the chargeback can be filed with the help of merchants account provider. Neverthless, still if you manage to reverse chargeback, still you have to lose chargeback fee + transaction fee. Paypal sellers are recommended to get credit card authorisation form duly signed by purchaser for any sale above $500 to effectively contain chargebacks.

Chargeback Time Frame

The card holder has 180 days from the 'date of purchase' to dispute and recover the money. Any guarantee, membership or subscription period purchased as part of the transaction may be added to the 180 day period. For example, goods with a 12 month guarantee (as stated on the web site), can be fully or partially charged back within 545 days of the "purchase date". This is because credit card companies like Mastercard, Visa etc. want to support their customers and not merchants. This is really hurting for every online seller.

Most of chargebacks come from developing and under-developed countries like ...


Not all countries are listed. Dont be surprised nextime when you get a chargeback from Afghanistan. It is necessary to screen all the orders from developing/underdeveloped countries. Most of them could be thieves or crooks ordering your product. Countries like Indonesia, Malaysia, Morocco, Vietnam, Nigeria, Russian countries belong to the category of Very High Risk.

Paypal Chargebacks

Although accepting credit cards with paypal, may seem pretty easy with paypal, too many chargebacks will make paypal to close your account. Paypal is not a bank and not subject to banking regulations, they will have control of your money as they wish. It is recommended to go for merchant accounts in this case. An excellent site that tells about this

Useful Links

1. Report credit card fraud at
2. Lost your merchant account because of excessive chargebacks. Bank Card Law can help you.
3. Valuable information about merchant accounts:
4. Credit Card Chargeback Rights from Attorney general of CA state :
5. Chargeback Guide : Published by
6. - Better advises and help on chargebacks.
7. Paypal Chargebacks -
8. PreventChargbacks.Info - Useful Information and Helpful tips.

Posted by chargebacks | 5:34 AM |

Sunday, January 08, 2006

Most Frequently Asked Questions about Credit Card Processing and Chargebacks

Most Frequently Asked Questions about Credit Card Processing and Chargebacks.

1. What exactly is meant by 'merchant account', 'internet merchant account' and 'payment gateway' ? I am little confused by these terms?

When somebody says 'merchant account' it refers to complete package for processing credit card. This includes 'internet merchant account' with 'payment gateway'. Internet merchant account is the checking account with your local bank where the funs from credit cards are capured and deposited. Payment gateway is a piece of software that does the credit card authorisation, fraud check, AVS all the work done in realtime. so all these parts make up 'merchant account'. Click here for a list of gateway providers You must have a internet merchant account ready, before you apply for gateway software.

2. Paypal or Merchant account? Which one i is the best for accepting credit cards?

Paypal undeniably the best, which most customers would like to pay. But on the other hand you cannot really trust paypal because the total control of money is with them. They can close your paypal account and block your money at any time. This is considered to be 'risky'. This problem will be eliminated by subscribing for merchant account. Infact many buyers think your business professional if you accept real credit card.

3. Can i use free email addresses, while entering credit card information ?

Normally, using free email addresses is NOT recommended and many merchants would refuse to take your order. Because when the Gateway software verifies your address with AVS along with bank records. Each has different set of scores return indicating the status of credit card. Email also checked with black listed free email servers for certain score. A gross total is computed indicating a status of credit card transaction. It is recommended to use your work email, if you dont have any paid email address.

4. What is a reserve fund, which many people talk about?

When you apply for a third party merchant account, a small percentage of amount, usually 1%- 3% taken from your first sales as reserve money. This is used to protect against chargebacks. This will be charged under rolling monthly cycle. For example, if you earn $100 on first month, and the reserve is 1%, $99 will be paid to you for first month sales. This $1 will be added to the second month sales and the cycle continues.

5. Technically, how many chargebacks is allowed for a particular business?

You must always keep your monthly chargeback rate under 3%. If your number of chargebacks goes above that you will be at put at 'high risk merchant' status and your merchant account will be shut down.

6. Does too many refunds, may also lead to suspension/closure of my merchant account?

Yes, too many refunds indirectly tells that your business is at risk. Many merchant account providers wont like that at all. They will suspend your account.

7. What exactly is meant by CVV2 and CCV2 security codes?

Card Verification Value (CVV2) VISA Card Verification Code (CVC2) Mastercard These are 3 digit security codes found at the back of your card. These codes ensure that you are authentic card holder. AVS checks these codes to give a score while processing a credit card.

8. What is discount rate?
A small percentage of each transaction the acquiring bank charges the merchant.

9. What is transaction fee?
A flat fee $0.15 to $0.35 charged per credit card transaction.

10. How does Address Verification System (AVS) work ?

AVS is intended for use on all "card not present" or "cardholder not present" transactions. AVS was developed my Intellipay compares the billing address entered by your customer to the address information your customer has on file with credit card issuer. Depending on the certain codes returned, the system decides whether to authorise the credit card transaction or not. See the list of AVS codes:

2. Shipping address is different from credit card.

3. Repeated failed authorisations using one or more cards.

4. Unusual large number of orders, from a single person.

5. Fast overnight shipping.6. Billing address is different from credit card address.Remember: Receiving chargebacks spoils your business reputation.


here are 15 tips by VISA for merchants: Their tips are pretty clear to understand.

13. Is there a time limit, where a credit card holder can dispute a charge?

In this case, i have some bad news for you. The card holder has 180 days from the 'date of purchase' to dispute and recover the money. He can dispute the charge by means of writing to his issuing bank. Any guarantee, membership or subscription period purchased as part of the transaction may be added to the 180 day period. For example, if you sell products/goods/services with a 12 month guarantee (as stated on the web site), can be fully or partially charged back within 545 days of the "purchase date". This is because credit card companies like Mastercard, Visa etc. favour very much customers and not merchants. This is really hurting for every online seller. Credit card companies say that mostly internet transactions are CARD HOLDER NOT PRESENT ENVIRONMENT, so there is no proof of purchase, which is required to dispute a chargeback.In my experience, chargebacks really are headaches.

14. how easy is to win a chargeback against the card holder?

Are you selling tanigble goods or intangible goods? Because what credit card companies say in digital goods or online payments is neither face to face nor any card holders signature is obtained. To win a chargeback you must have some proof to argue.Disputing a chargeback should be easy provided.1. You get the signature from customer from courier or shipping company.2. Signed Card Authorisation Request. Sample card authorisation request letter can be found here: are many number of merchants had successfully won against chargeback. Remember! credit card companies will always try to defend their customer. When you approach them get ready with all necessary documents showing the proof.

Normally, cardholder communicates the dispute within 120 days to the bank (issuer) who files the complaint with acquiring bank . This process is governed by Visa, MasterCard and Discover. Upon receipt of the chargeback request, acquiring bank will prepare a retrieval request. This is a time sensitive issue and you have 10 days to respond and supply a copy of the sales draft and supporting documents.

Visa also insists that you have to get "compelling evidence". For example you had talked to buyer on phone or something the buyer knows the validity of the transaction. see

Further, the information posted here is worth looking at:

I found a good reference regarding Visa/Mastercard/AMEX chargeback policy endorsed by of NY department of finance and taxation under EVTA guidelines. (Visa/MasterCard Chargebacks) (American Express Chargebacks)

Posted by chargebacks | 3:44 AM |

Chargeback Codes

Chargeback Codes

Your merchant account provider, will give you the chargeback code, as per the table listed below...

Chargeback Code Description

1 No support documentation wasreceived from previous request
2 The transaction information requested/required was illegible or missing
3 The transaction was declined or authorisation was not obtained
4 Other non Specific Reason
5 The transaction appears to be duplicated
6 The card was not valid or has expired
7 An incorrect card account number was processed
8 Fraudulent transaction processed - no cardholder authority
9 Additional transactions were processed at the same location without the cardholder's authority
10 This is a recurring transaction which has been cancelled
11 The card issuer was not provided with the amount of the transaction in the correct currency
12 The merchant did not obtain authorisation for an amount whichexceeds the ceiling limit
13 The goods/services received were not as described by the merchant
14 The cardholder does not recognise the transaction and is disputing it
15 The cardholder did not receive the goods/services
16 The goods received by the cardholder was damaged or defective
17 Multiple transactions at the same merchant outlet without thecardholder's permission
18 Merchant was unwilling or unable to provide the goods/services, or were paid by other me ns
19 A credit due from the merchant, was not received or received for a lesser amount
20 The transaction was processed incorrectly
21 The cardholder's signature was not obtained
22 An advanced deposit or reservation has been incorrectly administered
23 Documentation/information is required for legal reasons
24 A card-holder's signature is required to defend a Chargeback
25 The card-holder is querying the amount, please supply an itemised bill
26 An imprint of the card is required to defend a Chargeback
27 The card-holder requires details of the delivery
28 RFI Dispute unset due to time-out
29 RFI Dispute unset in preparation for Chargeback

Posted by chargebacks | 3:40 AM |

Friday, March 05, 2004

PreventChargebacks.Info - New Site

This prevent chargebacks blog is available as a fully qualified site Please also join our discussion Forum at:

Posted by chargebacks | 4:01 AM |