What is chargebacks and how does it work?

Overview

What is a chargeback?

A chargeback, also known as a reversal, occurs when a buyer asks his/her credit card issuing bank to reverse a transaction that has already cleared.

In a dispute over a chargeback, the decision is ultimately made by the credit card company and PayU cannot control the outcome.

Two common reasons for chargebacks are:

A buyer's credit card number is stolen and used fraudulently.
A buyer makes a purchase, but believes that the seller failed to fulfil their side of the agreement (for example, they did not send the item, sent an item that was very different from the seller's description, or the item was damaged when the buyer received it).

All sellers who accept credit card payments run the risk of being liable for chargebacks. Chargebacks are among the unfortunate costs of doing business. Many sellers factor this cost into their business risk model.

How Chargebacks work with PayU

Buyer requests chargeback from credit card company.
Buyer's credit card company notifies PayU’s merchant bank of the chargeback and debits funds from PayU.
PayU places funds related to the chargeback on a temporary hold from seller's PayU account.
PayU immediately email’s seller for additional information that can be used to dispute the chargeback.

What to expect:

If a buyer files a chargeback against you for a credit card transaction through PayU EasyMerchant, we'll email you as soon as we're contacted by the credit card company.
The funds in question will be held temporarily, as we work with you to resolve the chargeback with the buyer's credit card company.
If you dispute the chargeback, our trained chargeback team will help you build a powerful case.
The resolution process can take 75-100 days, depending on the credit card company.
If the credit card company decides in your favour, PayU will immediately release the funds back to you.

What are some best practices for avoiding a chargeback?

Duplicate transactions: Ensure that transactions/orders are only made once. Entering the same transaction more than once (by buyers pressing the back button or clicking on the Check Out button more than once), can result in "duplicate transaction" and chargebacks.
Refund policy: Seller refund policy should be clearly visible on your website. Make it a requirement that buyers read the policy before their order can be processed.
Refund in a timely manner: Failure to process refunds in a timely manner can result in chargebacks for "credit not issued." Also inform your buyer on how long it will take before the refund will be processed to their account.
Cancelling a rebilling: If a buyer requests cancellation of a recurring transaction which is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately or as specified by the buyer. As a buyer service, advise the buyer in writing that the service, subscription, or membership has been cancelled and state the effective date of the cancellation. Failure to respond to buyer cancellation requests almost always leads to chargebacks.
Contact information: Seller’s contact details should be clearly visible on the Seller’s website. Including a physical address and a telephone number, so not just an email address or contact form.
Shipping policy: Seller’s shipping details should be clearly visible on the Seller’s website. If your buyer knows when they will receive their product they will not issue a chargeback because they feel 'it has been too long' and they 'should have received the product by now'.
Order status update: Keep buyers informed on the status of their order.
Delay in shipping: If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date.
Out of stock: If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or cancelling the transaction. Do not substitute another item unless the buyer agrees to accept it. By giving the buyer notice and the option to cancel, you may help avoid a buyer dispute regarding the merchandise and a possible Chargeback.
DBA on buyers' statement: Use a clear DBA (Doing Business As) name that buyers will recognize. Vague corporate names that do not accurately describe what your company might do or sell will only confuse buyers when they review their billing statements. An unrecognized DBA name on billing statements is one of the most common causes of Chargebacks. Inform your buyers on your website what the billing name on their statement will be: "Please note: Our billing name on your statement will be: PayU: [your merchant name you provided us]."
Responding to a Chargeback Retrieval Request: Always respond to a Retrieval request as quickly as possible. A limited amount of time is available to resolve a dispute. If you miss the window of opportunity to respond, you forfeit your ability to fight the Chargeback. If additional information is required your quick response will ensure that PayU have enough time to get the relevant information from Seller to our acquiring bank.
Buyer satisfaction: Some disputes are not the result of unauthorized credit card use. Rather, they start because the buyer disputes the quality of the goods or services purchased. The best way to avoid this type of Chargeback is to work closely with the buyer to establish a mutually satisfactory solution.
Contact suspicious orders: Call, fax or email any large or suspicious orders to ensure the order is legit. If you are unable to reach the buyer, you might have intentionally been given incorrect contact information. Issue a refund to prevent a Chargeback by the credit card holder.
High-ticket sales/Fast delivery: Be suspicious of high-ticket sales requested to be sent next-day air or if a runner will be in to pick up the purchase at a later time. Be wary of orders for which the buyer is willing to pay more for faster delivery.
Verify the buyer's address: It is possible to verify the buyer's name, address and phone number with the card-issuing bank. By calling the Voice Authorization Centre for address verification, you can verify the address and also provide proof that you verified the address.
Always get signed proof of delivery: Be able to provide a shipping tracer log that shows that the buyer received the shipped goods.
Product information on website: Provide accurate descriptions and images of products on the Seller’s website.
Foreign orders: Be very cautious of any foreign orders. Generally, orders from Asia, the Middle East, and most parts of Africa are considered high-risk.
Different billing and shipping address: Be wary of orders with domestic billing addresses and foreign shipping addresses. They are usually fraudulent.
Foreign cards shipping to local address: Be wary of orders where a foreign card is used with domestic billing addresses. They are usually fraudulent.
Last minute changes to shipping address: Be wary of buyers requesting last minute shipping address changes. Most companies do not again perform the same degree of security/verification checks again as was done with order taking.

Why do some chargebacks occur so long after payment has been received?

Certain laws and credit card issuer policies usually allow buyers to file chargebacks weeks or sometimes months after the initial transaction occurred. This period could be up to 180 days.

Chargebacks and Sellers

How does PayU notify a seller when a chargeback is filed against that seller?

When a buyer files a chargeback, the buyer's credit card company notifies PayU's merchant bank. Our merchant bank informs us of the chargeback, and we immediately email the seller. The seller will then be kept up to date by our Support Centre on the status of the charge back.

What happens to the seller's funds when a chargeback is received?

When a chargeback is filed is sets in motion a chain reaction. The buyer's bank pulls the funds from PayU's merchant bank. PayU's merchant bank pulls the funds from PayU. We, in turn, pull the funds from the Seller’s account. If the Seller’s account has insufficient funds to cover the chargeback a debit will be raised against the sellers account to cover the difference.

Note that if the dispute is found in favour of the seller, PayU will credit the Seller's account with the disputed funds.

Disputing Chargebacks

How can a seller recover funds when a chargeback occurs?

In many cases, when a chargeback occurs, the money that is subject to the chargeback is deducted from PayU. In turn, PayU places a temporary hold on the same amount in the seller's PayU balance (the funds are frozen).

The seller and PayU can work together to dispute the chargeback with the buyer's credit card company. While the chargeback is being disputed, PayU will debit the seller's account for the amount in question. If PayU and the seller ultimately win the chargeback dispute, the credit card company will reimburse PayU for the chargeback, and PayU will transfer the recovered funds back to the seller. Depending on the credit card company involved, the process may take up to 75 days.

In cases where the Seller has resolved a dispute amicably with the Buyer through PayU, the Seller will be protected against any chargeback the buyer's credit card company later files for that transaction.

To be covered, however, the seller must honour agreements made with the buyer during the dispute resolution process. And, if the chargeback comes in before the dispute is resolved the seller will not be covered.

What information can a seller provide to increase the chances of winning a chargeback dispute?

The following types of information can increase the chances of a chargeback dispute being ruled in favour of the seller:

Proof of delivery, such as online tracking numbers.
Copies of the original item description or auction description, including any photos.
Proof that the buyer was already refunded.
Proof that the buyer was provided with a replacement product.
Correspondence with the buyer or feedback from the buyer.
Any agreements signed or accepted by the buyer at time of purchase.
Any return policy that was communicated to the buyer.

PayU helps you through the chargeback process

PayU has a team of specialists who will work with you to make a case with the credit card issuing company. Here's how:

Seller provides PayU with specifics of chargeback, including all records of transaction (for example, proof of posting).
PayU specialists attempt to fight the chargeback on the seller's behalf in order to recover funds from the buyer's credit card company.
If the credit card company finds in favour of the seller, the buyer is charged for the transaction and PayU returns the funds to the seller.