Credit Card Chargebacks

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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: http://www.intellipay.com/Docs/AVS.htm

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.

IT IS SOLE RESPONSIBILITY OF YOU TO TAKE CARE OF YOUR BUSINESS. NO ONE WILL HELP YOU LATER.

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: http://www.talkmerchantaccounts.com/chargebacks.htmThere 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 http://usa.visa.com/business/accepting_visa/ops_risk_management/chargeback_cycle.html

Further, the information posted here is worth looking at:
http://www.wellsfargosecure.com/customer/resolve_chargebacks.htm
http://www.hosthideout.com/archive/index.php/t-4249.html
http://www.hosthideout.com/archive/index.php/t-2174.html
http://www.chargebackprevention.com/ http://www.merchant911.org/OWL2.html http://www.fhmsi.com/tips.asp?vid=17

I found a good reference regarding Visa/Mastercard/AMEX chargeback policy endorsed by of NY department of finance and taxation under EVTA guidelines.
http://www.tax.state.ny.us/evta/guidelines_credit_chargebacks_2.htm (Visa/MasterCard Chargebacks)
http://www.tax.state.ny.us/evta/guidelines_credit_chargebacks_3.htm (American Express Chargebacks)

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