Understanding Chargebacks and How to Avoid Them


Chargebacks are problematic for merchants. A chargeback, also known as a reversal, is a transaction disputed by the cardholder or card issuer and there are many reasons they happen. The most common reasons are returned merchandise, terminated services, disputes, errors, or fraud. Many customers will go to a merchant first to resolve a dispute, only initiating the chargeback process if they cannot get assistance or a refund from the merchant.  It is a form of customer protection provided by the card issuing banks, which allows cardholders to file a complaint regarding transactions on their statement. Once the cardholder files a dispute, the issuing bank makes an investigation into the complaint.

A direct refund from a merchant to a customer is always less expensive than if a customer wins a chargeback. Chargebacks can be costly to merchants and can include the refund of the sale, loss of the product and varying chargeback fees. Merchants have to pay the chargeback fee regardless of the outcome of the case since the purpose of the fee is to cover processing administrative costs associated with the chargeback. Too many chargebacks can lead to a merchant losing their ability to process payments.

Compliance agreements have set chargeback limits that merchants must not exceed — which is why any business owner that accepts credit or debit card payments should do everything possible to avoid them.

All remedies to a chargeback must be in compliance with the card association’s rules and regulations. TransFirst® represents and supports our merchants by providing the correct information on any dispute. It is our goal to have disputes resolved in our merchant client’s favor whenever the circumstances allow it.

Implementing the following strategies can help you to avoid chargeback disputes in your business:

  • Brand your company well with a memorable name that is the same across all forms of communication, to be recognizable on billing statements to avoid chargebacks occurring due to people not recognizing your company.
  • If your DBA name differs from the name on statements, it’s a good idea to post notification at the point of sale to inform customers.
  • Be clear and upfront about your return policy and shipping policies.
  • Pay attention to any recurring billing cancellations and make immediate adjustments to avoid erroneous billing.
  • Provide excellent customer service and quality products. Adding value to every interaction and transaction helps to manage customer expectations and improve customer loyalty.
  • Access TransFirst’s free resources on secure payment processing for more information about fraud protection and industry regulations.

Chargebacks are sometimes unavoidable — but taking precautionary measures can help you protect your business, your customers, and the valuable asset that accepting credit and debit cards is to your operation.


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©2017 Total System Services, Inc. TSYS® is a federally registered service mark of Total System Services, Inc. All rights reserved. TSYS Merchant Solutions is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA; Synovus Bank, Columbus, GA, and First National Bank of Omaha, Omaha, NE. TSYS Business Solutions is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA; Synovus Bank, Columbus, GA; and Deutsche Bank, New York, NY for Visa and Mastercard transactions only.

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