An issuing bank works directly with cardholders by issuing credit cards, debit cards and prepaid cards to consumers. They also manage statements, bills and payments. Merchants rarely work directly with their customers’ issuing bank, but the issuers play an important role in the chargeback process. Chargebacks are extremely important because they can easily damage, and possibly destroy, a merchant’s reputation.
What is a Chargeback?
Issuing banks provide customers with protection in the form of a chargeback. A chargeback is an easy way for cardholders to file a complaint and receive a full refund for a purchase that, in many cases, was made without authorization from the cardholder. However, not all chargebacks are created equal. Some are legal, and even necessary for a dissatisfied customer, but the issuing bank’s system has many loopholes that are easily exploitable for customers. In order to stop fraudulent chargebacks, you need to know the different types of chargebacks that issuing banks deal with on a day-to-day basis. These include:
- Technical – Bank Processing Error.
- Clerical – Deals with billing issues.
- Quality – Cardholder claims issue with product or service.
- Fraud – Cardholder states they did not purchase; includes identity theft.
How Chargebacks Affect the Merchant
When a merchant does not dispute a fraudulent chargeback, they are inadvertently admitting guilt to the issuing bank. When there is no reaction from the merchant, the issuing bank will take a passive role in their defense, and will almost automatically assume, “the customer is always right.” If the merchant is proactive when disputing fraudulent chargebacks, it encourages the issuing bank to take on a more active role in fighting on their behalf to prevent fraud.
Disputing a chargeback may seem like a daunting task. Naturally, most issuing banks will side with the consumer and quickly approve chargeback claims. As a merchant, there are steps you can take to combat these chargebacks, and keep the issuing banks off your back. These include:
- Be an honest seller. Your reputation will precede you.
- Pick your battles. If you dispute an honest chargeback, like identity theft, there could be negative side effects for you and your customers’ loyalty to you.
- Keep meticulous records. This is the proof you need to discredit a chargeback.
- Know the time limits. Both the issuing and acquiring banks have time limits on disputing chargebacks.
With over 1.5 billion credit, debit and prepaid cards in circulation, issuing banks are in high demand. Issuers typically benefit the merchant by providing an easy way for consumers to pay for products or services. Remember, issuing banks will submit and issue fewer chargebacks against merchants who consistently dispute the fraudulent ones. It’s vitally important to know the issuing bank’s role in the chargeback process, know your rights, as a merchant, and know how the issuing banks work to reduce these incidents.