Chargebacks and How to Avoid Them

If you accept credit cards, chargebacks are often unavoidable, but it’s important to understand what they are and how to minimize them so that they do not affect your business.

A credit card chargeback happens when a customer contacts their credit card issuer to dispute a charge. There are many reasons consumers initiate a chargeback: their information was stolen and used fraudulently, they received an incorrect product or unsatisfactory service, they do not recognize the charge on their statement or believe they were incorrectly charged. Whatever the case, chargebacks can affect your business and your profit.

So how can you safeguard against unnecessary chargebacks?

Embrace a Compliant Cash Discount Program
Passing on transaction fees to customers who use credit cards is fully compliant with the card brands IF processed through a merchant services provider and a sanctioned program. Passing along transaction fees for purchases made with a debit card is never compliant, regardless of the program. The reason is that purchases made with debit cards are much like cash – as such, merchants must absorb fees for these purchases. If a business fails to comply with this distinction in the regulation, it runs the risk of chargebacks, fines and, if noncompliance is consistent, your credit card processing privileges will be revoked.

Follow Processor Protocols
In our last blog, we touched upon some important tips that can help protect your business from credit card fraud. These same tips can also help protect your business from chargebacks. Make sure your business has an established Card Present Transaction playbook in place, follow protocols for Card-Not-Present (CNP) transactions and make sure to keep all your records organized and current should you receive a chargeback so you can easily dispute it.

Maintain a Clear Payment Descriptor
Another common reason a business may receive chargebacks is due to an ambiguous name that appears on the customer’s monthly statement. That name should match your business and brand name. Weeks after the purchase, the customer may fail to remember the transaction and unclear payment descriptors often raise a red flag, resulting in the cardholder initiating a chargeback from their card issuer.

Become EMV Compliant
Since the lability shift in 2015, merchants processing credit card transactions on non-EMV-compliant terminals automatically assume liability for fraudulent transactions and all chargebacks, regardless of the reason or validity. Unfortunately, even though this regulatory change occurred more than five years ago, many merchants are still using non-compliant terminals. As such, they are at enormous risk with every credit card transaction they swipe. Upgrading is easy and far worth any extra effort.

We understand chargebacks can be frustrating and you may not win every dispute, however it’s important to take all necessary steps to avoid the time, effort and cost associated with them. At OTM Payments, your business is our number-one priority when it comes to cost saving and compliance.

To learn more about our team of industry veterans and how we can assist, visit us at or give us a call at (732) 270-7702 to discuss which one of our programs is the right fit for your business.


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