Thu, 8 August 2019
One of the privileges of using a card to make a payment is the ability to dispute that charge should something go wrong. Maybe you ordered one garden rake but got charged for two. Perhaps you ordered a sweater and, as my colleague Allen Weinberg puts it, “got shipped a box of rocks.” Or you discover a charge that you didn’t make on your card account and believe it’s fraudulent.
In all those cases, the dispute process involves a chargeback.
The cardholder disputes the charge, the issuer credits the customer for the amount of that charge if it’s an obvious mistake or fraud, and, depending upon the chain of liability rules and the type of transaction, one party—the issuer, the acquirer, or the merchant—will have to bear the cost of the chargeback.
For merchants, just getting a chargeback message is a cost in the form of a fee paid to its acquirer. How does $5 and (way) up sound? Chargebacks, as a payments cost, are no financial joke.
The card system also views the chargeback rate—the percentage of transactions that result in a chargeback—as a leading indicator of poor merchant behavior. Once a merchant’s chargeback rate approaches one percent of its transactions, the merchant’s acquirer or PSP is going to put it on notice. If the merchant doesn’t lower that rate pronto the merchant could lose the ability to accept card payments.
The chargeback process is also a cost to issuers who are generally the party first called by the unhappy customer (issuers will often ask the customer if she or he has called the merchant, too).
In other words, chargebacks are a result of something going wrong and they can be a costly hassle for everyone because, for many stakeholders, chargeback handling is still dealt with manually.
In this Episode 99 of Payments on Fire® we talk with Rick Lynch, VP of Business Development from Verifi, about the impact of chargebacks on merchants and issuers. He updates us on rule changes by Visa and Mastercard. And he addresses the process and techniques needed to handle these post-authorization events.
While only mentioned in passing during the episode, Verifi is being acquired by Visa, in another example of expansion by card network operators into adjacent payment ecosystem roles.