What is Chargeback, Contestation or Chargeback. How to avoid and maintain the health of your business

Imagine the following situation. You are an entrepreneur who has an e-commerce and sells products online. One day, information appears from a customer who made a purchase on your website. Soon the excitement comes, you check and discover that the purchase was made on your credit card and are happy to close another sale.

At the time you realize that you need to hire a carrier to take your product to the customer. Even though you know that the value of the freight will be high, you do not diminish the happiness for having sold. Then you remember that you also have that light bite of “Leão” with ICMS, Cofins, PIS and IRPJ for exclusively virtual stores.

It doesn’t hurt you, the important thing is that the product is already on its way to the customer’s home. When the money will fall into your account, a message from the credit card operator appears in your email box saying that the sale has been contested, and that the customer has requested a refund / refund.

The result is a product that came out of your stock, an unsuccessful sale and a lot of frustration. This is the process known as Chargeback.  

What will you read in this article?

  • What is the Chargeback?
  • Why was Chargeback created?
  • Main reasons for the Chargeback?
    • 1 – Processing wrong data
    • 2 – Error in processing values
    • 3 – Non-receipt of purchase / Products with problem
    • 4 – The purchase is a fraud:
    • 5 – Consumer bad faith
  • How to protect against the Chargeback?
  • The chargeback takes place in the online courses segment
  • Advantages of the Eadbox Payments Gateway
    • How does EADBOX identify frauds such as card theft, password theft and cloning?
    • What is the solution indicated by EADBOX when this happens?

What is the Chargeback?

According to the Financial Dictionary , “The chargeback (or dispute ) is a refund made by a credit card company to a cardholder.” Chargebacks can occur when a customer realizes that a purchase was made with their credit card without consent. When he informs the store or card company that he may have been the victim of fraud, e-commerce may lose money and may also lose merchandise. Unfortunately this is a situation that can happen. With the increase in online sales stores, the term contestation  is always on the rise. It is no wonder that it is one of the champion search words on Google as we can see in the image below.

Why was Chargeback created?

Even though it is terror of companies and credit card operators, the procedure is legal. It was created as a mechanism to protect the customer. In 1968, the US government created the Loan True Law that was one of the chargeback creation of pillars, but only in 1974 the payments industry experts created Fair Credit Billing Act ( fair credit billing Law ) which established the chargeback as a purchase dispute tool . However, it was only under President Jimmy Carter in 1978 that cardholders were entitled to reverse the purchase. The measure became known as the “Electronic Transfer Courtesy Act”.

Main reasons for the Chargeback?

There are several reasons that can generate a chargeback. I will list below the 5 most common reasons that can cause this situation. The points mentioned are directly linked to the segment in which EADBOX is inserted, which is distance education, but certainly some of them have similarities as other business models

1 – Processing wrong data

If the cardholder made a purchase of a product or service on the credit card, but at the time of validating the customer data, the bank or credit card operator’s system gave an error in the system, and ended up recording the data incorrectly , this can be a cause for dispute.

2 – Error in processing values

The customer makes a purchase with a certain amount, but when the invoice arrives, a different amount appears and without any mention of additional amounts, this can also generate a chargeback. In this case, the customer must contact the bank or card operator to report the error and request a refund.

3 – Non-receipt of purchase / Products with problem

Another reason for recurring dispute is when the cardholder does not receive the product or service that was purchased. Sometimes the customer may even receive it, but he realizes that the service or product has a problem. Another common situation to happen is when the product does not arrive on the promised date. In this case, the dispute goes through an analysis before the amount is reversed.

4 – The purchase is a fraud:

Unfortunately, having personal data involved in fraud is a situation that often happens in Brazilian e-commerce. A Serasa Experian survey revealed that in 2017 alone, there were 1.964 million fraud attempts involving card theft and cloning. This figure represents an increase of 8.2% compared to 2016. In this case, the card owner noticed that a purchase appears on the invoice that was not made by him. This can happen because your card and documents may have been stolen and end up generating a dispute. When the situation is identified as fraud it is important to report it.

5 – Consumer bad faith

It is sad to have to write this topic, but it is necessary to address this topic. This type of behavior is mainly noticed when buying products. Some consumers make the purchase and when the order arrives the person disputes the company that sold saying that he did not receive the product, thus acting purely in bad faith.

How to protect against the Chargeback?

Here at EADBOX we have the following deal with the customers of our platform. We recommend that users make a detailed check of some student data, such as: name of the buyer and cardholder . Analyze if the purchase ticket is much higher than normal , if there is more than one transaction with the same name / email / CPF but different cards . We also recommend that the customer contact the student and confirm the data informed at the time of purchase and analyze the relationship between the buyer and the cardholder. A very important observation is that it is up to the client to decide whether or not to trust the student’s suitability.

The chargeback takes place in the online courses segment

For those working with online courses, the chargeback can happen in two ways:  fraud and product with value not in accordance with the advertisement . The recommendation is to contact the card operator and request a refund. If your business model is different, it is necessary to pay attention to some points to avoid possible problems that generate a chargeback. Below are some preventive measures that can help prevent your business from being at a loss.

  • Profile Analysis:It may seem like a somewhat elusive strategy, but considering the health of your business it is important to analyze your buyer’s history. If possible, find out if he has any financial issues that might cause distrust when closing a deal. This analysis also helps to prevent people with bad intentions from buying already with the intention of requesting a chargeback.
  • Checking the data: It is necessary to thoroughly check the customer data after confirming the purchase. If it is a platform that does this for your company, it is necessary to have fields with very clear information such as: full name, date of birth, credit card details and verification code. See the Transparent Checkout for Online Course Sales article to improve your purchase process. .
  • Payment Gateway:It is a type of service that is usually hired by an online store (e-commerce) to avoid constraints such as chargeback. To better understand how this service works, consider the following analogy. You as a salesperson are on one side, the consumer is on the other side. Between you there is an abyss that separates the desire to sell and makes you want to buy. To get closer to each other it is necessary to have a bridge. This is the task of the Payment Gateway companies , making the connection between you and your customer. The buyer pays the company and the company passes the amount on to you.

Advantages of the Eadbox Payments Gateway

The Eadbox Payments is a Gateway itself that was developed with the goal of improving experience within our platform. All the most relevant information such as statements, payments and plans are presented in a way that the user himself gets the information in a few clicks. Check out the advantages of using it in the topics below the image.

– Centralized information: By using our gateway, the administrator is able to view information on courses, students and financial data in a single location, data analysis is also done on the same screen, making it possible to locate reports and cross-check data referring to the course and purchase.

– Intuitive Dashboard: It is possible to have a dashboard (dashboard) with information displayed in a visual way that allows you to think about Sales Strategies (conversion rates referring to the client’s platform are shown). You can view the sales funnel itself and identify the main results regarding the sale of course monthly.

– User Experience: The shopping experience follows a unique navigation flow. That is, when he decides to buy he is not directed to an external checkout from another payment system.

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