Credit Card Chargebacks: What Amusement Businesses Need to Know 

As the payments landscape continues to evolve, it is important to understand how a credit card transaction is processed and the liabilities a business may be held responsible for. Certain liabilities, such as chargebacks, can become an expensive burden. To start, it is beneficial to understand how a payment transaction is processed. At Paystri, we break down the transaction cycle into five steps. 

  1. The cardholder decides to make a purchase. This purchase can be completed through a variety of card acceptance methods, such as in-person, online, through a digital wallet, or over the phone. Whether the purchase is completed via a card-present or card-not-present transaction, the cardholder must authorize the payment. 
  1. The card account information is captured by a card reader. This may be through a terminal, a software solution, or a website. The cardholder information and authorization request are sent by the acquiring bank to the appropriate card network (such as Visa, MasterCard, Discover, American Express). 
  1. The card network sends the authorization request to the financial institution that issued the card. The card issuer approves or declines the transaction and sends the response to the card network. 
  1. The card network passes the decision to the Merchant Services Provider, such as Paystri, who then passes the decision to the merchant. If the transaction is approved, a receipt is issued. Keep in mind, capturing the cardholder’s signature is one method of reaffirming their authorization of the transaction. If the transaction is declined, it is either cancelled or completed with another form of payment. 
  1. Within one to four days, the merchant is funded for the transaction. 

This is the typical process for transactions to be authorized, approved, and funded. But what happens when a cardholder feels a transaction is fraudulent or the goods/services they were promised were not delivered? 

They can dispute the transaction and demand they be reimbursed the full amount of the payment by initiating a chargeback.  Initiating chargebacks can be complicated for cardholders, but issuing banks are supportive of cardholders’ claims of fraud or unfulfilled sales. The process can be broken in to five steps. 

  1. The cardholder files a chargeback by contacting the organization that issued the card. 
  1. The issuing bank reviews the claim and passes the dispute to the acquiring bank. 
  1. The acquiring bank reviews the dispute case and notifies the merchant of the chargeback. The merchant is billed for the full amount of the transaction. Additionally, the merchant is charged for chargeback and retrieval fees, which cover the acquirer’s cost of pulling transaction information and work related to completing the review of the dispute. 
  1. The merchant submits supporting documentation for the transaction to the acquiring bank. The acquiring bank shares the documentation with the issuing bank. 
  1. The issuing bank reviews the chargeback case and the documentation provided and reaches a decision. If the dispute settles in favor of the cardholder, the merchant is not refunded the transaction amount. If the dispute settles in favor of the merchant, the merchant is refunded the amount of the transaction. 

Chargebacks are often initiated by cardholders who are seeking a refund. What are some ways to make the refund process easier and avoid the hassle of chargebacks? 

  1. Clearly share refund policies with customers via in-store signage or on websites, as well as on receipts. Address questions on how returns can be processed, what forms refunds can be made in, and the timeframe for when returns can be completed. For instance, returns can be processed in a variety of ways, including store credit, full refund to the same payment method, or equal value exchange. It is also important to share what purchases can be refunded or exchanged. For example, can park admission tickets be refunded if unused? Are gift shop items acceptable for refund or exchange if in brand-new condition? Are items from food stalls final sale? Is there a timeframe for when purchases can be refunded? Consider where to share return policies and how refunds can be initiated. For example, are customers able to request refunds over the phone, through email requests, and in-person? Some high-visible and easily accessible areas where refund and exchange policies can be displayed are: 
    • Receipt footers
    • Activity brochures and park maps
    • Checkout counters
    • Website headers and footers
    • Website FAQ pages
    • Website product pages
    • Order confirmation emails 
  1. Share payment processing best practices with employees, such as capturing necessary card data (card verification value, CVV, and address verification service, AVS, codes) and asking cardholders to use their chip cards whenever possible. If a card has a chip and the transaction is not completed as a chip transaction (i.e. dipped in the terminal), the merchant will automatically lose if the transaction is disputed. Chip card processing is an additional method of secure processing for card-present transactions and should be used whenever possible. 
  1. Though signatures are no longer required on receipts by the card networks, it is helpful to capture cardholder signatures during card-present transactions as they verify the cardholder’s authorization. In addition to signatures on receipts, are there other steps during the sales process that businesses can take during the sales process that can verify proof of authorization for the purchase? One example might be capturing customer pictures at the point of entry. 
  1. Lastly, ensure employees are knowledgeable of when to issue refunds and are comfortable with processing refunds. Provide them with necessary information, such as refund policies, support, and contact information for the software provider if they have any questions on how to process the return within the software itself. 

A business may diligently implement all best practices during card acceptance, but the occasional dispute may be filed. How can a chargeback be resolved by a merchant? 

  1. The merchant is notified of the dispute. Notices are typically sent via mail or fax, depending on their preferred method of communication. 
  1. Upon receipt of the notice, a merchant is given a deadline by which they must submit evidence to the acquiring bank that the transaction was authorized by the cardholder. This evidence can be submitted via mail or fax (fax is typically the preferred method of submitting documentation). 
  1. Once the acquiring bank receives all documentation by the deadline, they complete the review and give the merchant their decision. 

Paystri clients have access to an online chargeback dispute portal, which allows merchants to receive chargeback notifications and submit dispute documentation electronically. 

Even with all precautions in place, the occasional chargeback is still a possibility for most business owners. Merchant Service Providers (MSPs), acquiring banks, and issuing banks understand this. The question then is when do chargebacks become problematic? If a merchant’s chargeback count exceeds 1% of their total transactions in each month, their MSP will be alerted, and they will need to work with their MSP to resolve any issues that may be causing a higher than usual number of disputes. 

A combination of clear communication with customers, proper signage, and capturing complete card data can bolster a business’s defenses against chargebacks. However, should the occasional dispute emerge, Paystri is here to support businesses in the process of resolving chargebacks. 

This article is written by Paystri’s Director of Partner Success, Nadia Choudhury. She has been in the Payments and FinTech space for over ten years, having worked with ISOs, acquirers, card brands, financial institutions, and ISVs. 

Paystri partners with Gatemaster to deliver a POS software solution that is fully integrated with credit card payment acceptance. Paystri also offers a wide array of payment processing hardware and software solutions for business owners with brick-and-mortar locations as well as eCommerce shopping carts. Get in touch with Paystri for more information.