Merchant Liability For Disputed Card Payments
You need to be aware of card chargebacks. These can occur when a customer disputes a card transaction. Your
bank can transfer liability to you and reclaim the value of the transaction.
There are two main circumstances in which chargebacks can be made:
- Fraud - for instance, if a cardholder disputes a transaction as it has been made with a stolen card or number.
- Inadequate customer service - for instance, if a customer never received the goods they ordered or if goods purchased were defective.
Authorisation of a transaction through your terminal means that funds are available in the customer's account at that point in time
and that the card used has not been reported as lost or stolen - but it doesn't necessarily prevent a chargeback. If a
card is used fraudulently, money can be reclaimed by your acquiring bank up to 120 days later.
Of course, your customers' key statutory rights in relation to the goods and services you provide remain the same whether they pay
by cash, cheque or card.
The key to minimising chargebacks is to take steps to verify the identity of people making card payments. In face-to-face
transactions the customer's PIN or, in some circumstances where a PIN cannot be used, signature is the most important security
measure. If a PIN verified transaction is authorised through your terminal, you won't be liable for a chargeback where
the cardholder claims they did not authorise the transaction. However, this will not prevent a chargeback if the goods or
service are not as described or are faulty. Where you cannot accept a PIN, a clear signature will help in responding to a request
for information but is no guarantee against a chargeback as this is something a fraudster could copy.
Customer-not-present transactions - such as Internet, mail order or phone transactions, present a greater risk because it is
more difficult to verify the customers' identity. You therefore face a greater risk of fraud and the resulting
chargebacks.
There are several initiatives that aim to combat this type of fraudulent activity including the Address Verification Service and Card
Security Code checking. Your acquiring bank will be able to advise you on which solutions are best suited to your business.
There are also specific schemes aimed at tackling fraudulent internet transactions. These include Verified by Visa and
MasterCard SecureCode.
See the page in this section on Fraudulent Card Payments Safeguards.
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