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Preventing Chargeback Fraud and Fraudulent Processing of Transactions

Definition of a Chargeback:

A procedure whereby a card holder or the card holder’s bank disputes transactions to credit cards.

Chargebacks Procedure

The merchant's account is debited along with any contractual chargeback fee(s) and the merchant must provide proof that the transaction is valid and satisfactory to the rules/regulations of Visa®/MasterCard to get money back.

Please note:
A chargeback handling fee is associated with each chargeback.  This is a processing fee for handling the chargeback and/or subsequent re-presentment.  The fee is not a penalty or a declaration that a merchant is right or wrong.


Procedures of :

  1. Bank or processor receives a chargeback from the issuing bank.

  2. Bank or processor mails notification of chargeback to the merchant, and the amount of the chargeback plus a handling fee (deducted from merchant’s settlement account).  If more documentation is required to clarify the chargeback, then it is sought from the cardholder’s bank.

  3. If a merchant feels that a chargeback is invalid, then the merchant may send his rebuttal and supporting documentation, in a timely manner.  Typically the merchant is required to respond within 10 days of the receipt of the chargeback notification.

  4. If the merchant has a valid rebuttal, then the Bank or processor re-presents the item to the issuing bank and reclaims the funds for the merchant.


Consequence for receiving too many chargebacks:

  1. Lost Product
  2. Chargeback Fees
  3. Fined by Card Associations
  4. Placed on Association Monitoring Program
  5. Loss of Merchant Account
  6. Terminated Merchant File


How many chargebacks are too many?

Visa®:  more than 100 chargebacks with chargebacks in excess of 1% of total transactions.

MasterCard:  more than 15 chargebacks with chargebacks in excess of 1% of total transactions.


Preventing Chargebacks

Most chargeback situations arise at the point of transaction—at the time the transaction is completed—and most online payment fraud can be prevented with a little training and prevention methods.

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