Question of whether choosing a processor matters when it comes to chargebacks. Well, if you just came here for a short answer then the answer is yes, how your chargebacks are handled does have a lot to do with which processor you choose to work with. If you are still reading after getting the answer in the first couple of sentences I hope to shed some light on how those differences manifest themselves.
The first thing you might be asking is why your processor matters at all, isn’t the issuing bank (the one who gave the consumer the credit card) the one who ultimately decides whether a chargeback is won or lost? Well, the answer is not so clear cut as that. By the letter of the law your merchant processor, once they receive a chargeback from an issuing bank, is supposed to do an investigation on their end (get evidence from the merchant about the transaction) and then send it back to the issuing company who will then decide which side is right, the consumer or the merchant. The problem with this process is that the merchant processor has a lot of leeway when it comes to what they send back to the issuer and what they don’t.
If a merchant processor thinks that it is unlikely that the merchant will win a chargeback they won’t send it to the issuing bank at all and the merchant will lose the chargeback. You might be thinking, well the merchant service provider sees thousands of chargebacks per month so they know what will win and what won’t. While that may be true in some cases, tell that to a merchant who just lost a chargeback that wasn’t even submitted. Honestly, for the most part you can tell the likelihood of a chargeback being successful, we certainly can do that seeing over 10,000 chargebacks per month. The problem is your merchant service provider, isn’t always right.
Could Chargeback.com predict accurately which chargebacks will be successful and which will fail? Absolutely. Could we predict with 100% accuracy? Definitely not. This creates a strange scenario where you are asking a company like a merchant service provider to predict, with complete accuracy, which chargebacks will be successful and which won’t. To add more confusion to this many of the merchant service providers also have issuing banks as part of their business so there is a possibility of a conflict of interest.
Many merchant service providers are trying to do the right thing but there are still a number of them that aren’t following procedures completely. They are supposed to be reviewing the chargeback on it’s merits and deciding if there is enough evidence to submit it to the issuing bank, not to pass judgment themselves. While this sounds good it is rarely applied universally. Let me give you a story that happened in the last few weeks.
We have a client who uses a smaller merchant service provider. Our client does a lot of international transactions because it fits their business model, but obviously there are risks associated with accepting international transactions. Inevitably this client received chargebacks from the aforementioned international transactions. When this client disputed these chargebacks, because they were legitimate transactions, the processor refused to send any of the responses to the issuing banks. Not just some of them that they thought they would lose, every single international transaction. Their justification was that our client was taking a risk by accepting international transactions and one of those risks was getting chargebacks. To be fair they were also basing it on the fact that they lose a lot of those chargebacks.
While it may be true that our client was losing a larger than average percent of those international chargebacks (compared to domestic), they were still winning some of them. If this was a courtroom (which a chargeback can feel similar to) it would be like putting someone in place to decide if a defendant was guilty based on certain criteria so they didn’t waste the judge’s time in actually finding out if the they were guilty or not. This is just the wrong way to do things.
Now, our client in this case certainly has the right to change processors if they find this unacceptable but that takes time and effort. If the client was small or had a high rate of chargebacks, that might be impossible for them to make a change. The point is that the processor shouldn’t have that power, the chargeback process is stacked enough against the merchant without adding another person in the chain that can just randomly veto a chargeback whenever they feel like it.
At this point you are probably wondering if all merchant providers are declining chargebacks whenever they feel like it? The truth is that we have found that there are processors out there who want to do the right thing and represent the merchant very fairly in the chargeback process. Not only do they represent a merchant with a fair process, they also make it easy to respond to a chargeback and give the merchant time to gather a response. Which brings me to the next difference between processors, response time.
While there is a set standard in the time to respond to a chargeback by the issuing bank, your merchant service provider can set whatever time limit they deem fit. We have seen time limits for responses, on average, as short as 3 days and as long as 14 days, it varies that wildly. This can make a huge difference when a merchant is gathering all the documentation necessary to fight a chargeback. Assuming you actually noticed a chargeback the first day only 3 days to respond is extremely hard when you have other business problems to solve in the meantime. It’s even worse if you don’t notice it for a few days.
There seems to be no rhyme or reason to why certain merchant service providers do what they do when it comes to chargebacks but it is something that definitely needs to be investigated before you sign an agreement with a provider. SOURCE
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