What if my Representment is Incorrectly Declined?
And what if a successful RDR or Ethoca submission gets charged back? Read on This blog breaks down the next steps.
Be sure to check out: A Merchant’s Perspective on Chargebacks.
We break down why chargebacks happen and discuss the methods for decreasing them.
A transaction is never free. Period.
And chargebacks are no different.
Every time a cardholder opens a dispute, that chargeback touches different levels in the Payments Ecosystem, snaking its way through the Issuer, the card association, and to the Acquirer. Every single point of contact, from the Cardholder’s Issuer to the Merchant’s Processor, charges a fee for their time, resources and services. That’s why the chargeback amount often exceeds the transaction amount—Merchants may see an additional chargeback fee, interchange fee and retrieval fee in their Processor portal.
Fees can stack up quickly, especially for high-risk Merchants that carry a higher risk of chargebacks and higher chargeback fees. And at the end of the dispute, who pays for everyone’s time and resources? The Merchant.
Let’s break down the underlying factors that affect the true price of a chargeback.
A chargeback starts when a cardholder calls their bank – the Issuer – and says “Hey, this transaction is wrong.” From there the Issuer will investigate their claim.
Issuing banks are the first (and only) line of contact for their card holder. For each chargeback, Issuers use up time and resources sending relevant information upstream. They tend to bundle these costs and charge the card network in the form of a retrieval fee. The price of the Issuers cut depends on customer service, fraud protection and dispute resolution.
Card associations facilitate the communication between Issuer and Acquirer. They make it possible for both parties to exchange information and documentation. They also establish the rules that define what is and what is not a valid chargeback.
Card associations want to be as hands off as possible. They won’t say if a chargeback is valid or not (unless they are in arbitration, but that’s a topic for another blog). They are instead involved in providing the guidelines and rules for determining a valid chargeback. And providing the infrastructure for Acquirer and Issuer communication. Fees will change from association-to-association, and chargeback-to-chargeback.
A Merchant’s Acquirer will get a communication from an Issuer notifying the chargeback. At this point, Acquirers reach out to their Merchant and allow them to reply. Acquirers also handle the authorization, settlement and deposit of funds from a chargeback.
Acquirers bundle their cost and risk into a chargeback fee. This fee can be flexible, like the interchange fee, differing from chargeback-to-chargeback and Merchant-to-Merchant. Baked into it are administrative costs, risk management costs and network penalties.
Even if every player in the payments ecosystem eventually makes their money back, they all hate chargebacks. Acquirers bear the financial loss and risk of default when paying. Not to mention the increased fees or potential termination caused from reputational harm. Card associations are forced to spend time and resources on managing the operational burdens. And Issuers run the financial risks of losing the chargeback, and in that case, they’ve wasted their time—not to mention potentially losing an unhappy customer.
Everyone wins when Merchants stay compliant.
Slyce360 tells you the root cause of chargebacks. That means you can start playing offense and fix rising issues before they become costly problems.
And what if a successful RDR or Ethoca submission gets charged back? Read on This blog breaks down the next steps.
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