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What is a Chargeback (or payment dispute)?

A payment dispute, also referred to as a chargeback, occurs when a cardholder disputes a charge on their card with their card-issuing bank. Chargeback can occur from unauthorised transactions or issues with goods or services.

Chargebacks can become problematic for Merchants as they can be time-consuming, complicated and can impact your revenue.

How do Chargebacks work?

  • A cardholder notices an unfamiliar charge on their statement and calls their bank to query or dispute a charge.
  • The cardholder’s bank investigates and determines whether there’s cause for a chargeback. If the issuing bank determines that the charge is valid, the bank might reject the cardholder's claim for a chargeback.
  • If the chargeback is determined to be valid, the issuing bank sends a chargeback notice to the Merchant’s acquiring bank which is then forwarded to the payments processor, in this case, Zai. The cardholder’s bank will also issue a temporary refund to the cardholder for the amount of the disputed transaction while the chargeback is being sorted.
  • The outcome of the Chargeback is up to the bank that issued the Chargeback and/or the Card Schemes i.e Visa, MasterCard or American Express. Zai does not decide who wins or loses a chargeback.

What happens if I have too many Chargebacks?

A high chargeback or dispute rate can have a negative impact on your ability to process payments. Zai may need to suspend or terminate your account if we are required to by the banks or card schemes. In general, you can avoid chargebacks by clearly communicating the terms of what you are charging the customer for and having sufficient fraud controls to detect and manage fraud. If you'd like any help with that, let us know.

How do I prevent Disputes or Chargebacks?

Chargeback is an evolving concern for all merchants in every industry. With technology advancement, fraud and chargeback risks are higher than ever. Below are some of the ways to help keep these threats under control.

Clear payment descriptors
The most common reason for a chargeback is from a customer not being able to recognise a transaction on their statement and ends up calling their bank to raise a dispute. Payment descriptors help customers identify the transaction on a bank statement.

Accurate description of goods and services
Making customers aware of what they are buying is important as this will reduce the risk of customers disputing a purchase where the customer receives a good or service that does not match what they expected to receive according to what was advertised.

Clear return and refund policy
Let your customers know what to do when there is an issue with what they have bought and avoid them going straight to their bank to file a chargeback. It also helps your case when you want to dispute a chargeback if you can prove that your return and refund policies are clearly stated.

Clear cancellation policy
If you have recurring subscription or membership fees, ensure that your customers are aware of the terms and conditions and make it clear during sign-up that your customers are agreeing to a recurring charge including the cancellation policy. You should also send them a reminder before each charge as this will avoid customers raising chargebacks claiming they were not aware of the terms.

Make it easy for customers to contact you
A lot of times, customers file Chargebacks because they find it difficult to contact the Merchant directly. Making it easier for your customers to be able to contact you gives you the opportunity to resolve any issues and avoid the customer filing a chargeback.

Lookout for fraudulent transactions
As technology continues to evolve and criminals become more innovative in their attempts to defraud businesses and consumers, it’s important to have robust fraud monitoring and detection processes as fraudulent chargebacks are almost impossible to dispute. Refer to “what are the common signs of fraud” section for a list of some of the most common signs of a fraudulent transaction. If you need help with managing fraud, let us know.

What are the common signs of fraud?

  • Purchases where multiple attempts are declined by the issuer
  • Unusually large purchase which does not match the good/service being paid for
  • Purchases made using multiple credit cards or payment methods
  • Multiple purchases in a short period of time 
  • Overseas purchases especially where you don’t usually receive orders from that country
  • Sudden changes in the customer’s behaviour or payment pattern (i.e increase in purchases/deposits/withdrawals)indicating they are acting out of character
  • Disposable or unusual email domains used
  • Payer’s bank/credit card account name is different from the customer name on file

How will Zai notify me when I receive a Chargeback?

  1. We are required to respond to the bank within a specified due date. We will need you to provide us with a response along with sufficient information within that timeframe or the cardholder will automatically win the chargeback and your payment details may be flagged by the banks for repeated chargebacks.
  2. If the chargeback is related to a fraud dispute, to protect your platform against fraud, Zai will place a block on the fraudulent user(s). When a user is blocked, future payment attempts will not be processed and you will receive an error stating that the user is “Held”.
  3. If the chargeback is related to a non-fraud dispute, Zai may not need to place a block on the user(s). This could be because the chargeback was raised as a result of the Merchant or Customer error and the issue can be resolved by contacting the customer.
  4. If you believe that the customer is genuine, you can request to remove the block. Zai may request proof of verification before removing the block.

IMPORTANT : When a customer files for a chargeback with their bank, the customer’s bank issues a temporary refund. There may be a case where a customer contacts you directly for a refund while simultaneously filing a chargeback with their bank. We strongly recommend that you do not refund the customer directly after a chargeback has been issued as this will result in the customer being refunded twice.

Zai will notify you via email with the details and any required actions (e.g. blocking the user on your end, gathering evidence for the chargeback etc.).

How do I respond to a Chargeback notification?

If a chargeback is valid and the cardholder is entitled to a refund, all you need to do is respond to the notice stating that you accept the chargeback and the cardholder will be issued a refund via the chargeback process. Otherwise, you can dispute a chargeback and it will go through a resolution process where you are given a chance to prove that the payment is valid and authorised by the cardholder.

Accepting a Chargeback
Merchants typically accept a chargeback if:

  • The transaction is known to be fraudulent
  • The Merchant is unable to provide sufficient evidence to dispute a chargeback
  • The transaction amount is low and does not warrant the effort involved in disputing a chargeback
  • The chargeback claim is legitimate and the customer is in fact entitled to a refund

Disputing a Chargeback 
Disputing a chargeback does not guarantee a win.  Both the issuing bank and the card network decide on the outcome.  Merchants typically dispute a chargeback if: 

  • The amount was refunded prior to receiving the chargeback claim
  • There is sufficient proof that the transaction is legitimate
  • There is sufficient proof against the chargeback claim 
  • The disputed amount is not fraud and the chargeback amount is substantial to warrant the effort involved in disputing a chargeback.

IMPORTANT : If you  receive a chargeback claim for a transaction that was already refunded before the Chargeback was received, we will do the following:
1. If the transaction was refunded via Zai, we will automatically dispute the transaction and submit required evidence on your behalf.
2. If the transaction was refunded outside of Zai, we will require you to send us proof of refund.

What are the other associated costs with Chargebacks?

There are costs involved with Chargebacks aside from losing goods and profits. Note that Chargebacks are governed by the Card Scheme rules and issuing banks, and therefore, Zai does not have any control on Chargeback fees and any associated costs that are charged. Chargeback fees vary depending on the bank.
As an example:

  • In Australia and New Zealand, Chargeback fees range from $15.00 AUD to $50.00 AUD per chargeback
  • In the United States, Chargeback fees range from $10.00 USD to $30.00 USD per chargeback
  • There are also other costs involved such as “Arbitration fees” which is determined by the card schemes. Arbitration is the final stage of the chargeback process and the losing party could be subject to fees of up to $500.00 USD

What happens if I lose a Chargeback?

When Zai receives a chargeback, in most cases, the bank debits the amount from Zai's account straight away and when the chargeback results in a loss, Zai will need to recover the cost by direct debiting your nominated account for the disputed amount along with the chargeback fee as indicated on your pricing schedule. Failure to collect on these owed funds may result in the suspension or termination of your payment processing account.

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