What is a chargeback / dispute?
A chargeback is a reversal of a payment that occurs when a cardholder disputes a transaction they didn’t authorise. This means you don’t get paid for the goods and services relating to the transaction, even if you’ve already provided them.
The cardholder’s bank (credit card issuer) can make a chargeback on the transaction if the:
- Card wasn’t valid at the time of the transaction
- Goods and Services purchases were not received
- A Periodical Authority has been cancelled but the merchant continues to debit
- Good and Services were paid for by other means
- The transaction has been duplicated
- The merchants promised a credit that has not been processed
- The goods and services purchased were not as described or defective
- The incorrect amount was charged
- Sales receipt is changed without the cardholder’s authorisation
- Transaction was processed to your own credit card
- Transaction amount is above your floor limit, but this amount wasn’t authorised
- Transaction was made to refinance an existing debt or collect a dishonoured cheque
Generally, a cardholder can dispute a transaction for any of the above reasons. If you can’t prove that the cardholder authorised the transaction, then you’ll be liable for the chargeback.
You may also have to pay fees for the chargeback to be processed (in the event of a loss) or in the situation of arbitration.
What happens if someone raises a chargeback / dispute?
Firstly, you will receive an email from Pinch. The email identifies the transaction that is being disputed together with a deadline for challenging the dispute. Your customer will also be included in the email to make exchanging information easier.
Most disputes are raised due to confusion or a lack of communication regarding a charge. The best thing you can do as a business is to respond to your customer as soon as possible after receiving the email.
Resolution with customer and their bank
If you come to a resolution with your customer, the most effective way of settling the dispute is to ask your customer to contact their bank, cancel the dispute and supply you with a reference number. You can then pass on the reference number to us.
Challenge the dispute
If your customer refuses to cancel the dispute with their bank or you cannot contact them, you must then send to us everything you have on the transaction including evidence of the product / service being delivered, contract agreements and any other evidence you can find. This allows us to challenge the dispute with the cardholders bank.
This isn't guaranteed to reverse the dispute as the cardholders bank can always decline the challenge, but from our experience it is always worth doing.
Winning the dispute
If you win the dispute (either by your customer cancelling the dispute or by the bank overturning the dispute), you will receive an email from us confirming that no further action will be taken.
Losing the dispute
If you lose the dispute, you will receive an email from us advising that the dispute has been lost and that a debit will occur. The debit will be for the total amount of the transaction processed, plus a dispute fee (See Dispute Fees Here). If there are multiple disputes, the fee will be added for each individual transaction.
If you feel that the dispute has been unfair, you can take the dispute to arbitration. Under normal circumstances, a dispute is resolved between our bank and the cardholders bank. However, the cardholders bank is acting in their customers interest and our bank is acting in your interest, so there are clear interests at play here.
Arbitration is the process of taking the dispute to the card schemes (who will act independently). The card schemes decision is final, and they will require as much information as possible before starting the process. There is also an $800 fee issued by the card schemes to start the arbitration process.
In our experience, this process is best avoided as it can be expensive and slow but given the transaction amount may be the final action for you to take.
It is also worth noting that arbitration is only available for disputes related to credit card charges. For bank account payments, the banks decision is final.
Avoiding chargebacks / disputes
This whole process is best avoided, so here are a few hints and tips:
- When auto-debiting via an invoicing system, try to have at least 7 day terms before the payment is debited. Ensure that the invoice is sent to your customer to give them adequate time to review the invoice
- If an upcoming charge is higher than usual, ensure that your customer knows about it well in advance
- Keep communications open at all times so your customer does not forget who you are. This is especially important as your customer may have personnel changes who do not recognise your business if they don't receive regular communications from you
- Avoid unscrupulous individuals / companies. Unfortunately, there are many people who will raise disputes in a dishonest fashion. Always know your customer before entering into an ongoing relationship with them