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Jan 20, 2022
by David Goodale

What to do when you lose a chargeback?

(Slightly edited from video transcript for greater readability)

Hello, David here at Merchant-Accounts.ca. Today I'm going to tackle a very frustrating topic. Sometimes it's infuriating. What do you do when you get a chargeback and you lose it and it's completely unfair? What's left? Stay tuned, I'm going to do my best to help in one second.

If you own a business, chances are at some point, you're going to get a chargeback. A chargeback is a dispute between you and a cardholder. And sometimes chargebacks happen for legitimate reasons, you know, products not as described, or the customer is just not satisfied or maybe it's a fraudulent transaction, and the legitimate cardholder really didn't buy something. Well, those things happen. That's a part of business. That's not what I'm here to talk about today. What I'm talking about is where you have acted ethically honorably, you've done everything you're supposed to do as a business owner, and you get a chargeback that is completely unfair.

I had a client recently, they have a shipping logistics business. And they had someone that had owned a gym that was impacted during COVID. So they were moving all of the gym equipment out of their gym. The logistics company provides the truck, they don't load the truck, they don't provide the actual service. They just provide the logistics to get it arranged for you.

The long or short is this person loaded up the truck, they did the loading, the customer opted not to pay to have the company load it, and then drove it to the place where the equipment was going to be delivered. The equipment got damaged in transit. So the logistics company, my client, helped them to submit an insurance claim with the insurer. And the insurer came back and said, no, you (the business owner - the gym owner), you packed the truck yourself. You can't improperly strap your equipment, drive it, damage it and have us pay. And so after that, the person turned around and did a chargeback against the merchant saying no, this wasn't me. I didn't order this logistics. I didn't order this.

Now it's obviously totally apparent that this was a legitimate transaction, and the gym owner indeed did complete the purchase. I mean, they met them there. They loaded the truck. They drove it. They submitted an insurance claim. Do fraudsters submit insurance claims? No. And what happened? My client still lost the chargeback. Why? Because the card-issuing bank either didn't read the case or didn't care. And it was infuriating for my client. And all that what they didn't know. Although I helped them to explain, the payment processor, the credit card processor has no say in the chargeback process. The chargeback is initiated by the card-issuing bank. They say to the processor, hey, this chargeback is occurring. Here's the reason, talk to your client about it.

As a processor, we reach out to the merchant and say, Hey, this chargeback just came in. This is the story that we've received from the card issuing bank. What do you want to do? And as the merchant, you put together a case, and then you submit it back to the processor, who delivers it to the card-issuing bank. And the card-issuing bank renders a decision. The processor is just the go-between, they don't have any control whatsoever. And so in this case, when they lost the chargeback, initially they were super furious at us like how could we do that well, we didn't, it was the card issuer. But what a lot of merchants don't know is if the issuer gets it wrong. And let's be clear, sometimes they get it right, but sometimes they get it wrong. If they get it wrong, you can send it, you can escalate it to formal binding arbitration, Visa, and MasterCard. And it is an expensive fee to do this in the hundreds of dollars. I think it's about $500 per arbitration that's charged by Visa to the loser of the arbitration, or however they decide in whatever way they decide.

In this case, this merchant had pictures and they had the truck and they had the insurance claim. They were able to prove that no less than this guy really bought this from us his equipment got damaged and he tried to charge it back to us not our fault. So that's a case where you would take it to Visa for arbitration. But outside of that situation, you wouldn't, like if it's an unclear let's say that you sell $100 pair of shoes and a customer submits an unreasonable. Maybe they return the shoes and they're all scuffed because they went on a forest hike in it. Like I can't give you a refund for this, third dirty and muddy. I can't resell it. Is it worth going? Okay, so you do the chargeback? You lose the chargeback because the issuer goes in the wrong direction. Then what do you do? Do you end up going to arbitration? Are you going to risk $500 to win back $50 or $100? No.

So when you're in this situation, you have to say, what is my upside? What is my downside? Is it worth it taking to arbitration? Sometimes morally if you're so frustrated, you're willing to spend the money then do it. That's not the type of advice that can give one way or another. That's a personal decision. But financially, it's only worth taking arbitration if it's really strong, if it's a really strong case, and it's also why pre like all the way back to your order process, it's really good to have strong, clear terms and conditions. So both you and your customers know the agreement that you're entering into when they're purchasing from you. It's exactly the type of scenario or an ounce of prevention is worth more than 10 pounds of cure. So if you've ever had chargebacks that are frustrating, or if you want to help increase your probability of winning a chargeback, if it ever happens, reach out to us at Merchant-Accounts.ca. We can try to help with this try to help you improve your business processes. We believe there are no silly questions. And I hope I've clarified a little bit that if you lose a chargeback, you can talk to your processor about taking it to arbitration, at Visa or MasterCard, but it's a really serious job if you do that. Be prepared. Have a really strong case, have your documentation together to prove your case. And good luck to you. Thanks for watching. Have a good day there.


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David Goodale About the Author

My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.

Toll free: 888-414-7111 ext. 5
Direct: (905) 901-2254
david.goodale@merchant-accounts.ca

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