Everything You Need to Know About Visa Debit Chargebacks
A Visa debit chargeback is similar, but not identical, to a traditional credit card chargeback. Most eCommerce merchants are likely familiar with the concept of a chargeback: a customer calls the bank with a complaint, and funds previously credited to the merchant go back to the cardholder. What isn’t as widely understood, though, is how the chargeback specifics differ.
Circumstances may change depending on whether the customer used a debit, credit, or prepaid card for the transaction. These differences impact the timeframe for chargebacks, the liability of each party, and more.
Credit vs. Debit Chargebacks: Whose Money is Affected?
All chargebacks include the movement of funds. The key question: whose money is most directly involved?
In the case of a debit card transaction, funds are pulled directly from the cardholder’s bank account. With a credit card transaction, however, the funds are merely deducted from what the cardholder owes the bank.
In other words, from the consumer’s perspective, a debit card chargeback directly impacts how much money is available to spend at that moment. In contrast, a credit card chargeback only involves money that must (theoretically) be paid sometime in the future. This temporarily lowers the cardholder’s credit limit. However, that’s the only significant direct impact for the consumer until the case is resolved.
This suggests that while cardholders might be better off using a Visa credit card, online merchants may gain a slight advantage when customers to pay with debit or prepaid cards. There’s more to the story, though, besides the funds in question.
Credit vs. Debit Chargebacks: The Merchant Advantage
How do merchants benefit from debit card transactions? As we’ve seen, debit purchases tie up the cardholder’s own funds, and individuals typically want that money back as quickly as possible. That means greater incentive for them to go straight to the merchant for a refund, rather than drag things out through the Visa debit chargeback process.
The exact opposite happens with a credit card chargeback. In that scenario, it’s really the bank’s future payment affected; issuers make no money unless someone (either the merchant or the customer) pays back the loan. That means the bank is more likely to push the chargeback through without proper due diligence.
To illustrate how this breaks down, let’s look at two different scenarios: one involving a Visa debit chargeback, the other a Visa credit chargeback.
A Visa credit cardholder requests a chargeback:
- The issuer, who loaned the money to the cardholder for the transaction, realizes the “loan” might go unpaid.
- The bank has a vested interest in ensuring quick chargeback resolution.
- It’s in the bank’s best interest to keep customers happy, which could mean deciding against the merchant without fully investigating the claim.
A Visa debit cardholder requests a chargeback:
- The issuer has no vested interest, as the funds from a debit transaction come directly from the cardholder’s account.
- Because it isn’t a high priority, the process can drag out over weeks or even months.
- A debit chargeback doesn’t ensure a refund for the full amount; in fact, there’s a chance nothing will be reimbursed.
Cardholders may do better with a refund than a Visa debit chargeback, as the traditional refund from the merchant might be the quicker and more profitable option. Plus, the merchant avoids a chargeback and the accompanying fees. With a Visa credit chargeback, though cardholders have nothing to lose…and possibly something to gain at the merchant’s expense.
For their part, banks can afford to be a little lax with debit chargebacks, but are more inclined to aggressively pursue resolution for credit chargebacks. That’s not always in the merchant’s best interest.
Credit vs. Debit Chargebacks: Cardholder Fraud Liability
Debit, credit, and prepaid cards differ in the amount of guaranteed fraud protection they offer. For example, credit card users have a federally-mandated liability cap in cases of identity theft or fraud. The Fair Credit Billing Act (FCBA) ensures that credit card users are liable for no more than $50, regardless the amount of the fraudulent charges.
Cardholders who report a card lost before use by a fraudster aren’t held responsible for any unauthorized charges. Additionally, most modern credit cards now offer “zero liability” protection, meaning cardholders are not responsible for any fraudulent charges at all.
Debit card fraud protection falls under the Electronic Funds Transfer Act (EFTA), which is very different. This may still cover consumers, but the guaranteed coverage is conditional. Whether or not it protects the buyer depends on when the card is reported lost. When it comes to prepaid cards, there’s no legal entitlement to protection; it’s solely at the discretion of the issuer.
|Payment Card||Level of Fraud Protection||Expected Time Frame|
|Credit Card||Cardholder liability is capped at $50.||Accounts are usually reimbursed immediately, or at least within a few days.|
|Debit Card||If reported within two days, liability is capped at $50.*||It might take 10 days for the bank to award a refund.|
|Prepaid Card||Liability is left to the discretion of the issuer.**||The time limit is left to the discretion of the issuer, but usually is within 10 days.|
*If reported after two days, liability is capped at $500. If reported after 60 days, the cardholder is liable for the entire transaction amount.
**At best, protection will mimic that of a debit card.
Some consumers prefer to use debit cards rather than credit in order to avoid building up debt. Visa, however, suggests consumers are generally better off using credit cards than debit cards, based on the security recourses offered.
Avoiding Visa Debit Chargebacks
Visa offers certain tips, tools, and suggested practices to merchants. Following these should help prevent a Visa debit chargeback:
- Include all fees, taxes and shipping in the cost of the original transaction whenever possible.
- Never try to collect on a delinquent debt (e.g., a bounced check) by simply charging the cost to the associated account.
- Deposit transaction receipts within the period of time specified by the acquirer.
- Be sure that only the last four digits of the card number show on sales receipts or other documentation.
- Employ fraud detection tools such as AVS (Address Verification Service), CVV (Card Verification Value) and Verified by Visa at checkout.
- Clearly explain and display your policies in regard to returns, exchanges, delivery expectations, and so forth.
- Be sure customers are aware of any upcoming policy changes or charges they may not expect (like an automatic subscription renewal).
- Above all, provide excellent customer service: respond to emails, phone calls, and social media comments promptly and courteously. This increases the likelihood of a customer calling you—not the bank—if an issue arises.
Your goal here is two-fold: first, eliminate as many potential chargeback triggers as possible. Secondly, if a customer does have an issue, you make it easy and natural for that person to contact you before filing a chargeback. Hopefully, you can resolve the problem independently. Otherwise, you at least have the option of offering a refund, avoiding a chargeback and the accompanying fees.
Best of all, implementing best practices for avoiding Visa debit chargebacks will help you prevent Visa credit chargebacks, as well.
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Don’t Let Chargebacks Undermine Your Business
While chargebacks can come from either debit cards or credit cards, there are significant differences when it comes to mandated fraud protection. Because of these differences, online merchants are far less likely to see a Visa debit chargeback than a chargeback from a Visa credit card transaction.
But regardless of whether they come from a debit or credit transaction, chargebacks are bad news, and merchants need an effective prevention strategy. If you’re worried about navigating the intricacies of Visa’s chargeback policies or have other questions about chargebacks or friendly fraud, contact Chargebacks911® today. Our experts can answer your questions and even provide a no-obligation chargeback audit.