Payments Blog

The Chargeback Process: How Does it Happen?

If you’re a merchant, operating in the digital commerce world, it’s extremely likely that you’ve already dealt with a few chargebacks. They often create unwanted, tedious work for merchants. To effectively prevent chargebacks, it’s important to understand why and how they come to fruition in the first place.

There are several different reasons that a consumer would elect to file a chargeback. If their product arrives after the expected arrival date, the consumer may feel that they’ve been unfairly treated, which could lead to a chargeback. Additionally, if they receive a product that isn’t up to their standards or isn’t what they expected, they could file a chargeback.

While these two examples are prevalent and problematic for merchants, fraudulent chargebacks are a much bigger and more serious issue. If a cybercriminal obtains a consumer’s card credentials and uses them to purchase products and services online, the consumer will likely see these unrecognizable charges on their statement, and file a chargeback.

Unfortunately, the merchant is in the dark during most of the chargeback process. When a consumer decides they want to file a chargeback, they call their issuing bank directly, or use the bank’s online service to dispute the transaction in question. Most of the time, the bank sides with the consumer and issues them a full refund.

At this point, the consumer’s issuing bank contacts the merchant’s bank, known as the acquirer, to send back the charge and to determine the exact reason for the chargeback. Now, up until this point, the merchant is “out of the loop,” and has no information, regarding the specific chargeback. This is an unfortunate byproduct of this entire process and it can create an immense amount of frustration for merchants.

There are ways for merchants to fight back against fraudulent chargebacks. They can dispute the chargeback and submit it for representment, but that is often a last-ditch effort to recoup the lost revenue. If they want to proactively address this issue, merchants can utilize consumer authentication, specifically our rules-based solution, Cardinal Consumer Authentication (CCA).

With CCA, merchants will have enhanced control over the entire transaction process and by instituting rules that will determine which transactions make it through their system, they will be able to keep cybercriminals away from their online store, which will, in turn, limit their fraudulent chargebacks.

CCA authenticates the cardholder during checkout, often behind the scenes with no consumer friction, by using data from the merchant and the issuer. If there is a suspicion of fraud, the cardholder will be challenged via a passcode sent by text to their mobile device, or via a biometric step-up. This protects the cardholder, but it also doesn’t happen very often. Most transactions will be authenticated behind the scenes, and will have no effect on the consumer’s experience. But, if a fraudster is conducting the transaction, they wouldn’t have access to the cardholder’s mobile device or their biometric information, which means they wouldn’t be able to complete the transaction. With One Connection to Cardinal, we can Drive your Digital Commerce.

Posted by CardinalCommerce

Welcome to the CardinalCommerce blog. Cardinal is a global leader in authenticating digital transactions, with One Connection to drive digital commerce. Our goal for this blog is to provide a platform that will inform and educate our Customers and partners on consumer authentication, payments, mobile commerce, solution design and big data.

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