1 July 2016

Chargebacks & Disputes Guide

This ‘Chargebacks and Disputes Guide for Merchants – Card Payments’ is applicable to card transactions on American Express, eftpos, Mastercard, UnionPay International (UPI), and Visa cards.

What is a Chargeback?

A chargeback occurs when a cardholder disputes a transaction that was processed via your merchant facility. This usually happens when a cardholder believes a transaction was processed incorrectly, was not authorised by them, or goods/services were not received as described.

The cardholder raises a dispute with their card issuer, who in turn raises a chargeback with Tyro if the chargeback meets chargeback lodgement requirements.

It’s important to note that the final decision on a chargeback is made by the card schemes (Visa, Mastercard, American Express, eftpos, and UPI).

Common reasons for chargebacks

  • A cardholder’s card number was stolen and used fraudulently/without their consent.
  • A cardholder believes that goods/services were not provided in part or in full, or were defective/damaged, or were not as described.
  • A cardholder believes they were charged more than once for the same purchase.
  • A cardholder believes they were unable to obtain a refund or replacement or credit for returned goods

How will I be notified when receiving a chargeback?

You will receive an email from us notifying you that Tyro has been debited for a chargeback raised against your merchant facility.

It’s important that you inform Tyro immediately when you change your contact details. If your contact details are not up-to-date when a chargeback is received, Tyro may not be able to contact you in the required timeframe and you may lose the opportunity to defend the chargeback.

What do I need to do if I want to accept a chargeback?

If you would like to accept a chargeback, you can simply reply to the chargeback notification email we send to you. Your nominated account will be debited for the chargeback amount and the cardholder will be reimbursed.

How do I dispute a chargeback?

If you would like to dispute a chargeback, you must respond to Tyro in the timeframe prescribed in our chargeback notification email and provide Tyro with details of the transaction, correspondence with the cardholder (where applicable), and appropriate documentation to support your case.

Tyro will take steps to defend a chargeback raised against you where it is allowable under chargeback rules. Tyro must comply with prescribed timeframes and transaction processing requirements, and may only submit acceptable documentation.

What documents should I provide to dispute a chargeback?

The documentation required depends on the nature of the chargeback and Tyro’s chargeback notification email will outline this.

Examples of valid documentation include:

  • Proof of delivery;
  • Communication with the cardholder;
  • Signed contracts;
  • Signed terms and conditions;
  • Photo ID of the cardholder;
  • Tax invoice with item description, cardholder’s name and billing address.

How much time do I have to dispute a chargeback

Please respond to Tyro within 7 days of receiving the chargeback notification email and provide the information and documentation requested. This will enable Tyro to review the documentation, request more information if needed, and respond to the card issuer in the prescribed timeframe.

When will I know if my chargeback defence was successful?

The card issuer generally has between 30 and 45 days to dispute the acquirer’s defence of a chargeback. If you do not receive notification from Tyro within this timeframe, it is likely that your defence has been successful, however Tyro will email you if your defence was unsuccessful or if the card issuer has countered your defence and more information is required by Tyro in order to respond to this.

What is arbitration?

If acquirers and issuers cannot agree on the outcome of a chargeback, an opportunity may exist to ask the applicable card scheme to arbitrate on the case to determine who wears the financial liability. Fees are levied by the card schemes when arbitration cases are raised and this dispute resolution option is generally only pursued in material dispute scenarios involving high value/high stakes or complex cases. Arbitration is not a good option when the associated fees outweigh the chargeback value at risk.

Best practices and tips for avoiding chargebacks

All transaction types:

  • Authorisation process – Understand that the transaction authorisation process only confirms that the card used in the payment transaction has not been blocked by the card issuer and has sufficient funds to cover the transaction value. Even though an authorisation may return an “approval”, it does not mean that the card is being used by the genuine cardholder, and this is a particularly important consideration when processing Mail Order/Telephone Order (MOTO) transactions and eCommerce transactions. Chargebacks may still be received, even when authorisation/approval is provided.
  • Providing refunds – When providing refunds, only refund to the card used in the corresponding payment transaction and never provide a refund for more than the value of the corresponding sale. If you process a payment on a card and then refund to a different card or by another payment method such as a bank transfer, the different card or other payment destination has immediate access to the funds and a chargeback may be received against the card used in the corresponding payment transaction, leaving you out-of-pocket.
  • Never process payments for others – If you process payments on behalf of a third party, you wear the liability for those transactions. This might include chargebacks and financial penalties that result from fraud, non-delivery of goods/services, or compliance breaches relating to the sale of illegal goods or engagement in financial crimes.
  • Requests to increase the transaction value – Never increase the value of a payment transaction to cover monies owed by a cardholder to an unknown third party (such as a courier service, wedding planner, pick-up truck, florist, caterer, etc.) and never make payments to these third parties via money or bank transfer. Fraudsters use this method, known as Funds Transfer Fraud, as a mechanism to extract cash from merchants, generally by placing larger value orders over the phone. This often results in monies being transferred to (say) a courier engaged in the fraudulent activity and a fraud chargeback being received because the card used in the payment transaction was stolen.
  • Split payments – Never split payments into smaller amounts using the same card, especially when this is requested by the cardholder, as this may result in chargebacks.
  • Trading name – Ensure that the trading name used by your merchant facility is consistent with the name used by your business on its signage, correspondence, invoices, and website. This will assist in preventing cardholders from raising chargebacks because they are unfamiliar with the name appearing on their card statement.
  • Conditions of sale – Make cardholders aware of your conditions of sale, including your refund/return policies, and quickly respond to cardholder queries, complaints, and requests for refunds/exchanges when they are raised. Your ability to defend a chargeback may be strengthened if the cardholder formally accepts your conditions of sale, whether this is by way of a signature, a formal communication such as an email, or a “click-to-accept” when conducting an eCommerce transaction.
  • Shipping goods – When shipping goods, it is advisable to request cardholders to sign for deliveries and provide photo ID, however this does not guarantee protection in the event of a chargeback.
  • Keep records – Keep transaction records and copies of correspondence with the cardholder for a minimum of eighteen (18) months, as this may be relevant and useful in responding to chargebacks.

Card present transactions:

  • Always dip/tap cards – If the cardholder makes a purchase in store, always dip or tap the card and ensure you obtain and check the cardholder’s signature if prompted to do so. Never manually enter the card number when the cardholder is present as this greatly increases chargeback risk.
  • Maintain control of the merchant EFTPOS machine – When you dip the card and ask the cardholder to key their PIN, maintain focus on your merchant EFTPOS machine at all times and never allow the cardholder to operate the EFTPOS machine when unattended. This will prevent the cardholder from cancelling the authenticated chip transaction, engaging the MOTO functionality on the EFTPOS machine if this is turned on, and processing a card not present MOTO transaction that leaves you vulnerable to fraud chargebacks. When unattended, specifically out of business hours, ensure your merchant EFTPOS machine is stored safely to avoid theft and manipulation and check the EFTPOS machine each day for any signs of tampering.

Card not present transactions (Mail Order Telephone Order [MOTO] and eCommerce):

  • Higher risk – Understand that MOTO and eCommerce transactions are riskier than other transactions and are more likely to result in a chargeback as the cardholder is not present when the transaction occurs. In the event of a chargeback, it is your responsibility to prove the actual cardholder (and not a fraudster in possession of the card details) initiated and completed the transaction, meaning that the chargeback risk of these transactions resides with you, not Tyro or the cardholder.
  • Risk appetite for loss – MOTO and eCommerce transactions should only be processed when the value of the transaction sits within your risk appetite for loss. It is often said that if a purchase (or sequence of purchases) seems too good to be true, then it probably is and caution should be taken before shipping goods or providing services. Make every effort to know the identity of the cardholder and verify this information where possible.
  • Higher risk transactions – Fraud can occur in many different ways and there is no silver bullet when it comes to preventing fraud chargebacks. That said, you should apply caution when processing:
    • Unusually high-value orders;
    • Multiple transactions on the same card to different shipping addresses, or the use of multiple cards with the same shipping address;
    • Multiple different cards originating from the same email address or IP address;
    • Multiple transactions on the same card in a short time period, especially for large value items;
    • Orders with different billing and shipping addresses, especially for large value items;
    • Bulk orders, especially for high-value goods or infrequently purchased high-quality items;
    • Orders with unusual addresses or addresses that can’t be verified;
    • Orders requiring expedited shipping, particularly for large value items or duplicate items;
    • Orders from higher risk jurisdictions, especially where the goods being sold are commonly available in that jurisdiction;
    • Refunds when the cardholder requests the refund to a different card or cards.
  • Click & Collect – Care should be taken when processing Click & Collect transactions, where cardholders pay online and collect in store, specifically where this involves the sale of alcohol or high-value goods. You should have procedures in place to validate the identity of the cardholder and confirm the age of the individual collecting the goods when there are applicable age restrictions.
  • Website requirements – Follow Tyro’s Website Requirements for eCommerce transactions, which are designed to assist you in meeting card scheme requirements and provide greater protection against chargebacks when processing eCommerce transactions. These requirements will be communicated to you at the time of onboarding and may include specific requirements for some business types.
  • eCommerce transaction authentication – 3D Secure (3DS) technology can be used to authenticate eCommerce transactions, which is the online shopping equivalent of chip and PIN security for card present transactions processed on a merchant EFTPOS machine. Version 1.0 of 3DS has been available for a number of years (e.g. Mastercard Secure Code and Verified by Visa), however has limitations and creates “friction” for cardholders. Version 2.0 will be adopted globally in 2019/2020 (depending on the card scheme) and is expected to make the technology available on browsers, mobile apps, and connected devices, and significantly reduce the cardholder payment friction seen with Version 1.0. Tyro will only support Version 2.0.