A cardholder or their issuing bank has the right to question or dispute a transaction. As per card scheme rules, this has to be within 120 days after the transaction has been debited from the cardholder’s account. However, where there has been a delay in the delivery of goods / services, the 120 days could run from the date when these were expected to be received by the cardholder.
A chargeback occurs when the genuine cardholder disputes a transaction with their issuing bank or the issuing bank themselves queries a transaction; a chargeback can occur for a number of reasons. A chargeback can be raised on either a card present or card not present transaction that has been accepted by a merchant and is subsequently returned to their acquiring bank by the card issuer as an unpaid transaction.
A chargeback represents a claim on a merchant’s account to reverse a transaction they have processed and their acquiring bank will debit their nominated bank account with the value of the disputed transaction. This can happen even where a merchant has received an authorisation for the transaction.
To help reduce the likelihood of receiving a chargeback, an acquiring bank may have provided a merchant with details on the correct way to accept a card transaction in their Merchant Operating Instructions or Operating Manual.
Click on the links below to view more information about each of the following topics:
Request For Information (RFI)
Typically, the chargeback process starts when a merchant’s acquiring bank receives a Request For Information (RFI) from the cardholder’s card issuing bank asking for a copy of the card transaction’s details. The acquiring bank will then pass the RFI onto their merchant requesting copies of supporting documentation e.g. what goods or services were provided, any delivery address, or how the service was provided, a sales slip or payment record and include the latest date by which the merchant has to respond. Where a transaction has been completed using chip and PIN, the card issuer will be able to retrieve the necessary information from electronic records and a sales voucher, showing the signature, is not required.
Using the documentation a merchant has supplied, an acquiring bank will attempt to defend the chargeback, on their behalf, in accordance with the card schemes’ rules, and a successful outcome in their favour is dependent on acceptance by the card issuing bank of proof that the chargeback is not warranted.
Liability Shift
The liability for losses on a fraudulent transaction can shift from a merchant to another stakeholder in the card payment cycle depending on which stakeholder is unable to authenticate the cardholder. Even though a merchant has received an authorisation for the transaction and there is a liability shift in place, a transaction could still be charged back where the goods or services supplied are faulty or not as described.
There are different liability shift authentication rules for card present transactions, which use chip and PIN, and card not present (internet) transactions, which use MasterCard SecureCode and Verified by Visa to help protect a merchant against fraud.
A merchant can discuss with their acquiring bank how they can benefit from a liability shift depending on how they are accepting their card transactions.
Common Chargeback Reasons
Set out below is the most common reasons why a transaction could be charged back by an issuer:
- The cardholder claims not to have authorised or does not recognise the transaction. Since the UK now has chip and PIN, this is primarily when a card not present transaction is accepted. However, where a transaction has taken place over the internet, a merchant can better authenticate the cardholder using MasterCard SecureCode and Verified by Visa.
- The cardholder claims non-receipt of goods.
- The goods or services were defective or not as described.
- The card has been used before the effective ‘start’ or ‘valid from’ date or after the card has expired.
- A merchant has failed to respond in time to a request for a copy of the transaction or a request for information.
- The amount of the sale exceeded the floor limit and authorisation was not sought.
The signature on the terminal receipt or sales voucher does not match the signature shown on the card itself. - The card used in the transaction was not a valid card.
- A refund was not processed or has not been credited to the same cardholder account that was originally debited.
A merchant’s acquiring bank can provide further details on the full range of codes and their meaning.
