Why Merchant Bank Statements May Show Surprise Withdrawals
Chargebacks are a bothersome financial burden for all merchants. However, when merchants receive chargebacks without notification, the business suffers unfairly at the hands of friendly fraudsters.
Initiating a Chargeback Without Notification
In the event of a credit card transaction dispute, card network regulations stipulate that the cardholder must first try resolving the issue directly with the merchant. However, studies conducted by Chargebacks911® show this is does not typically occur.
Approximately 25% of consumers contacted the merchant after filing the chargeback.
For a variety of reasons, cardholders are more apt to contact their bank without any attempt to resolve the issue with the merchant. This process is commonly referred to as friendly fraud, and the effects of these chargebacks can be both devastating and permanent.
Friendly Fraud Chargebacks
True fraudulent activity does occur on occasion, and the cardholder must have a method for resolving the issue. However, chargebacks designed to be a ‘when all else fails’ methodology have become the first line of defense for customer dissatisfaction.
Friendly fraud results from various inconsistencies throughout the chargeback process.
- The outdated payment industry has not kept pace with the technology of today. When chargeback regulations and policies were developed, internet sales, mobile payments and ecommerce didn’t exist. While the payment methods have changed, the guidelines for chargebacks have not. Card networks have not developed effective strategies to deal with the new face of commerce.
- Unscrupulous consumers have discovered ways to exploit weaknesses in the chargeback process. Chargebacks are filed out of conveniences, not necessity. Rather than secure a traditional refund in accordance with the merchants return policy, consumers seek bank-issued refunds in the form of illegitimate chargebacks.
- In an effort to keep their customers happy, issuing banks have adopted a ‘the customer is always right’ philosophy. A lack of verification regarding chargeback requests from customers makes the chargeback process simple and effective from the fraudster’s perspective. As a result, merchants pay the price through chargebacks, fees and loss of revenue.
- Establishing policies and procedures for effective chargeback management can be overwhelming and time consuming. Merchants waste valuable resources that should be used to grow the business.
With deficiencies in every aspect of the process, it is easy to see how chargebacks without notification have become such a detrimental and expensive problem.
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After a Chargeback is Filed
As a result of the cardholder’s claim, the merchant account is debited for the amount of the transaction, without any notification to the merchant. These chargebacks without notification can be devastating to merchants who are expecting the funds to be in their bank.
Additionally, merchants face fines and penalties, as well as potentially losing their ability to process credit card transactions.
Preventing and Disputing Friendly Fraud
Merchants can establish policies that may help eliminate friendly fraud. While they may not completely rule out chargebacks without notification, they help the merchant reduce the risk of friendly fraud.
- Promote company contact information, including email address, phone number, and web address.
- Make returns simple. Eliminate complicated policies, short return windows and cancellation fees.
- Offer 24/7 customer service. Provide ample support options: telephone, email, live chat, etc.
- Maintain communication with the customer, notifying them of any expected delays or other issues with the order.
When merchants do experience chargebacks without notification, it is important to fight back. Representment is a chargeback right that merchants must execute when illegitimate claims are made by friendly fraudsters and perpetrated by issuers without sufficient due diligence.
Representment provides the merchant with the opportunity to present evidence that the original transaction was valid.
There are three severe repercussions of simply accepting illegitimate chargebacks:
- Cardholders aren’t penalized for their actions. Forty percent of cardholders who successfully file a friendly fraud chargeback will file another within 90 days. Challenging a cardholder’s illegitimate claim teaches a valuable lesson: friendly fraud is shoplifting and there are repercussions for such unlawful actions.
- Issuing banks will facilitate more friendly fraud chargebacks against the merchant. Processing merchants’ representment cases is a time consuming and costly endeavor for issuers. They want to avoid the process whenever possible. If merchants regularly defend their innocence, banks will be burdened by the extra effort. In an attempt to avoid future representment responsibilities, the bank will begin executing more due diligence when the original chargeback is filed. However, if merchants don’t fight, banks will just keep sending chargebacks through.
- Merchants unnecessarily lose significant amounts of revenue. Chargebacks without notification drain the merchant’s bank account. It is possible to get those funds back, but only if merchants take action.
While representment is essential, it isn’t easy. The process involves great effort and a sacrifice of resources on the merchant’s part.
If you are concerned about chargebacks without notification, contact Chargebacks911® to find out how our comprehensive chargeback management services can help prevent losses, recover revenue, reduce risk, and improve longevity.