Chargeback responses - What you need to know

Very few businesses manage to operate with zero customer disputes. Because the customer might always be right but that doesn’t necessarily mean they’re always happy. One of the more unfortunately common disputes arises when customers question or dispute a transaction with their bank, leading to a chargeback against your business.

This can be a particular problem for small businesses that might not be aware of the many fraudulent chargeback claims made against businesses every year, often from stolen credit cards.

Is the chargeback fraudulent?

While many chargebacks are perfectly legal and can be for a legitimate reason, most merchants will tell you that fraudulent chargebacks unfortunately make up the majority of their customer disputes. It’s a disappointingly common practice amongst minor criminals.

One way ofspotting that a chargeback might be fraudulent is if it’s flagged by the bank as a fraudulent claim or if there is no reason code attached to it. However, just because the chargeback is not coded doesn’t necessarily mean it’s fraudulent. The next step is to verify the customer’s IP address and investigate any potential AVS or CVV failures. 

Thankfully, many e-commerce platforms come with built-in protection against fraudulent chargebacks and will automatically reimburse you if the chargeback is found to be false. However, they will often charge a premium for this protection.

How does a chargeback work?

The four major credit and debit card networks in the UK all agree on a system of 151chargeback reason codes. When a customer files a chargeback with their bank against your business, you will be sent the reason code that aligns with the reason described by the customer. This can then be used to help you formulate an accurate response. 

If you wish to dispute a chargeback then this response should always contain evidence that reinforces your statement. But what evidence should you be including in your chargeback response?

Chargeback response templates

What you should include in your response depends on the kind of business you run and the kind of transaction being disputed.

Every response should include at least the following:-

• A copy of the initial invoice

• Proof of delivery

As far as what else to include, there are four basic legitimate chargeback reasons, each requiring a slightly different response.

Unrecognised chargebacks

These chargebacks occur when customers don’t recognise charges on their accounts and issue chargebacks because they wrongly assume they have been victims of fraud. Nine times out of ten, this is due to poor merchant descriptors and the best way to ensure it doesn’t happen to your business is to ensure that your descriptors are clear.

Responses for these chargebacks should also include evidence of a connection between the cardholder and order recipient, if available or evidence that the disputer is not telling the truth and is using the product.

Subscription chargebacks

This happens when a customer pays for a subscription but cancels their subscription payment through their bank rather than through the merchant. This could be because the merchant has made it difficult for subscribers to cancel or because the card on file has expired.

Responses for these chargebacks should also include the initial subscription cancellation policy and proof that the customer has seen that policy.

Product not received chargebacks

When a customer hasn’t received an item they have paid for they might choose to claim a chargeback rather than settle the issue with the merchant. The best way to ensure you don’t fall afoul of this is to put together a solid shipping and fulfilment policy and forge good relationships with local and national couriers. 

Responses for these chargebacks should also include tracking numbers and shipping information for physical goods and IP addresses, timestamps and activity logs for digital goods.

Product unacceptable chargebacks

If a customer receives an item they feel doesn’t meet their expectations or is defective, they might claim a chargeback due to the product being unacceptable. 

For those supplying quality products, this chargeback is often caused by poor or inadequate product descriptions. Chances are the customer attempted to make a legitimate return that was denied by your return policy so they were forced to take matters into their own hands.

Responses for these chargebacks should also include a rebuttal to the cardholder’s claim and any documentation that proves the product delivered matches its product description.

The chargeback process

For UK users, all Direct Debit chargebacks are processed by the Bacs scheme.

The first part of this process involves the customer contacting their bank and declaring that a payment has been collected in error. The bank will then contact the chargeback provider (e.g. GoCardless) and debit the required amount. The Direct Debit provider will then notify the merchant and debit the chargeback amount from them.

Note that merchants with direct access to the scheme will be notified and debited directly. The merchant will also only be notified of the chargeback if they use a Direct Debit provider.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.