Chargebacks and Your Business: Facts and Fiction

November 6, 2015


Warning! Chargeback!

Definition: a big scary word that translates to fraud and revenue loss for many merchants.

Given chargebacks can spell big trouble for a business, most merchants prefer to avoid the topic altogether, but it’s another “must know” element for merchants if they are to properly protect their business and customers.

Test your knowledge about the facts and fiction of chargebacks.


TRUE OR FALSE: A chargeback is a refund demanded by a cardholder’s issuing bank for a fraudulent transaction.

FALSE: While sources like Wikipedia define a chargeback as “a forced return of consumer funds,” this isn’t always the case.  In fact, sometimes a chargeback is simply a request from the issuing bank for additional information regarding a transaction.

Moneris defines chargebacks as:

An adjustment to a merchant's account from a previous sales transaction. The reasons for chargebacks can be due to errors made by the merchant in the submission of their credit card transactions, non-authorized transactions and disputes from cardholders.” 

Among the many reasons that a chargeback can be issued include:

  • Request for Information
  • Fraud
  • Authorization
  • Processing Errors
  • Cancelled or Return
  • Services or Goods Not Received
  • Quality Issues (Not a Described/Defective)


Fraud is only one of the reasons that a chargeback is issued.  The others may simply be the result of a customer return but did not receive a credit from the merchant, a service related dispute, submitting a transaction without an authorization or an accidental duplicate charge. 

Merchants don’t need to panic every time they learn of a chargeback. Moneris provides merchant resources to help remedy potential chargeback disputes such as ‘Advice Notification,’ as well as access to an easy-to-access reporting system to retrieve the information.


TRUE OR FALSE: Mitigating a chargeback involves many steps and can take months to resolve.

TRUE: A general outline of the process is as follows:

  1. The cardholder notifies the issuing bank about a transaction discrepancy on his/her credit card statement.
  2. The issuing bank checks the validity of the claim.
  3. If the issuing bank determines there is reason for the dispute, it then initiates the chargeback process with the merchant’s payment processor (Moneris).  An advice notification is sent to the merchant with details to remedy the dispute.
  4. The merchant responds to Moneris with the supporting documentation.
  5. Moneris reviews the documentation received from the merchant and determines if the information remedies the dispute. If deemed valid, the chargeback is re-presented to the card issuer and an adjustment reversal is requested.   If deemed invalid or insufficient,  Moneris declines the merchant’s rebuttal and may request the further details. 
  6. The card issuer reviews the re-presented documents from Moneris and determines if the documentation remedies the disputes. The card issuer may refer the information to the cardholder for acceptance. If accepted, the case is closed.  If it is not accepted, the case then moves into the Dispute Arbitration cycle. During this phase of the dispute the case can be submitted to the Card Association (i.e. Visa, MasterCard, Discover or UnionPay) for an Arbitration Ruling.  When a case is submitted to the card association for Arbitration Ruling, the decision rendered is final.


There are not only a lot of steps, but many involved participants.  Each step takes time and it can be a lengthy process; one that merchants likely want to avoid.


TRUE OR FALSE: Cardholder’s are given the ‘benefit of the doubt’ when it comes to chargebacks

TRUE: Unfortunately for merchants, chargebacks were established with the main goal of protecting cardholders.  This is because the policies side with the cardholder when there is lack of evidence otherwise, but if the merchant has done due diligence to protect themselves, loss can certainly be minimized. has a great list of tips to avoid chargebacks:

  • Follow processor protocols – for instance, be sure to check the expiration date and enter the security code on the front or back of the card.
  • Clearly define your payment details – if you list a different name in your payment details than what the customer might recognize, the customer may not recall the purchase.
  • Get it in writing – whenever possible, get written proof of sale.
  • Provide exceptional customer service - if a customer is unhappy, address it quickly and satisfactorily to avoid an extended dispute.
  • Train employees well - it's a good idea to train employees thoroughly in how to properly process both card-present and card-not-present transactions.
  • Keep good records - customers' credit card transaction dates, amounts and authorization information, as well as any signed documentation such as receipts or contracts, all can protect you in case of dispute.
  • Fight back when it makes sense - if you think you could win a case, it may be worth pursuing.


TRUE OR FALSE: There's no way to detect potential fraud, particularly in card not present (CNP) transactions.

FALSE: There are many ways.  Merchants have become much more familiar with the necessary steps to protect themselves against card-present fraud, such as following proper card acceptance procedures by processing transactions with EMV capable devices that allows the cardholder to enter a PIN as the verification method. This helps limit liability if the charge is disputed.  

For CNP purchases, merchants should invest in fraud tools such as Verify by Visa, and MasterCard SecureCode to protect against Fraud disputes. These tools authenticate the true cardholder during the checkout process.

But there are red flags that merchants (and employees) should know to help avoid online fraud:

  • A new customer ordering a big-ticket item or placing a large order
  • Multiple orders in a short period of time
  • Different billing and delivery addresses
  • Multiple order attempts with the similar card details – purchaser may be guessing required information
  • Multiple orders with different credit cards, but delivered to the same address
  • International shipping where Address Verification Service is not available
  • Address search results in a non-existent or undeliverable location

Besides being alert to potential fraudulent purchases, business owners should also keep extensive purchase records.  Keep in mind that customers have up to 18 months to dispute a charge, depending on the type of business.  Retaining files that date back at least 18 months is crucial.  Also, take extra security precautions as you see fit, without displeasing customers. In cases where you have shipped merchandise you should request proof of delivery.


TRUE OR FALSE:  Your payment processing provider cannot help you to minimize chargebacks.

FALSE: Payment processors such as Moneris can, in fact, reduce chargeback instances by ensuring that some of the risks are minimized.  Moneris provides detailed information to educate merchants on chargeback disputes. Additionally, resources are available for merchant training that teaches ‘proper card acceptance procedures’ that ensure correct transaction processing.


TRUE OR FALSE: Chargebacks cost me money as a business owner.

TRUE and FALSE: Depending on the outcome of the investigation, it may cost your business up to $100 for the chargeback, in addition to the financial loss for the purchase if you are considered liable. The odds are in your favour if you properly educate and arm yourself for chargeback situations.  

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