What Is A Chargeback?
A chargeback is a forced refund to a
consumer's credit card. Charge backs usually happen because of
fraudulent use of a credit card, or because of some
perceived failure on the merchant's part.
How Do Chargebacks Work?
When a credit card holder requests a refund from the credit
card company, the credit card company evaluates their request,
and, if approved, takes the money out of your merchant
account. The credit card company normally gives you a
specified amount of time to dispute the claim. If you can
convince the credit card company that the chargeback is not
justified, the money will be put back into your merchant
account.
Why are Chargebacks Bad?
Banks normally charge a hefty fee for each chargeback, so you
lose the original amount of the transaction, as well as an
additional fee.
In addition, banks really get nervous when they start seeing
chargebacks. Get too many, and they might close your merchant
account.
How to Avoid Chargebacks
As I mentioned earlier, most chargebacks happen because of
credit card fraud. It follows that the best way to avoid one
is to avoid the other.
There are two main ways to avoid credit card fraud.
The first is known as AVS-or Address Verification. Most
gateways offer this feature. Basically, the gateway will check
that the address given during the sales transaction matches
the address on file for that card. If the addresses don't
match, the transaction is denied.
The second method is to require the security code - or CVV2
Code - to be provided by the buyer. This is intended to verify
that the card is actually in the buyer's posession.
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