Taking Card Payments, weighing the risks and understanding Chargebacks.
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Taking Card Payments, weighing the risks and understanding Chargebacks.

Accepting card payments from new or unknown clients, online and offline can be a risky business.

July 20th, 2020

Accepting card payments from new or unknown clients, online and offline can be a risky business. We open ourselves up to fraud. With the right approach however, these known risks can be mitigated.

In this article, we’ll look at the known risks of accepting card payments from new or unknown clients - online or offline - and the outcome of when it goes wrong: the ‘Chargeback’, what to do when it happens, how to avoid it and how to increase the likelihood of winning in the case of a dispute.

This is essential reading for any businesses looking to maximise their rate of conversion and close more deals.

What’s driving client behaviour: Accepting card payments from new and unknown clients, online and offline

While convenience, service and experience are regarded by many leading luxury retailers as the three tenets underpinning their growth, the same principles could be said to apply to galleries and dealers, whom not unlike businesses within the luxury industry are supporting a client making an emotional purchase.

Pursuing this line of enquiry a little further, when analysed with respect to a new and unknown client - online or offline - wanting to pay by card, Galleries and Dealers are required to weigh perceived risk with the expectations of their client.

For many Galleries, the perceived risks of accepting card payments from new or unknown clients are often considered to be too great and yet, it’s not entirely uncommon for clients to readily offer their card details when a price has been agreed in a bid for convenience, often creating inconvenience for the Gallery.

In any case, how you wish to accept payment from your clients is concerned less with what we stand to gain and more about what we stand to lose by adding friction to a delicate sales process. It seems therefore that closing sales more effectively has as much to do with empowering your client as it does risk.

Assessing these risks is concerned with understanding the facts and getting to grips with the upshot of a card payment going awry: Chargebacks.

What are Chargebacks

When a client pays you by card, the card holder is able to dispute the transaction by raising it with their Cardholder or Issuing Bank. The reasons behind their dispute are explored in the following section: What are the reasons for Chargebacks.

In most cases however, irrespective of the reason for dispute, the Chargeback is more commonly raised 3 to 4 weeks after the transaction was processed. This is often because of the time delays implicit in the delivery of a monthly statement containing the disputed transaction.

When a dispute or query has been raised, a merchant will be required to pay a fee of €25 and supply as much information as possible to support the legitimacy of the transaction by the issuing bank.

Known as Representment, information supplied by the business is everything a business can supply to prove that the client did indeed instigate the transaction and that the business did indeed deliver the purchased goods or services on time, as described and in-keeping with their terms and conditions.

Upon completion of Representment, the Issuing Bank will present this information back to their client who may choose to accept the charge or continue to dispute the transaction. Should the client continue to dispute the transaction, the case will enter into Pre-Arbitration the outcome of which will see an additional chargeback for the merchant as well as a €250 fee for the losing party.

Arbitration follows and this phase of the dispute process is handled by Visa and MasterCard themselves who will review the case using information supplied by the business and the client. Their decision is final and a €500 fee will be issued to the losing party.

What are the reasons for Chargebacks

While there are a number of reasons why a Chargeback is initiated by the client, the majority of cases are usually to do with human error or negligence e.g. not protecting card information, or reporting a card as lost or stolen in good time.

If card details are compromised or a card is lost or stolen, there’s a chance it could end up in the wrong hands. When it does, the Fraudster will look to purchase goods or services using the card, with a view to selling their purchase on the secondary market.

While this highlights some of the known risks associated with accepting card payments, a fraudulent card payment is one of the few reasons for dispute which can be mitigated against by integrating your payment system with a Chargeback Protection service.

In summary, reasons for Chargebacks include:

1. Fraudulent Cards
2. Card not processed
3. Client states the items were not received
4. Client claims the goods or services were not as described
5. Faulty cards
6. Other technical problems with software or hardware

What you can do to prevent Chargebacks

The following checklist will help you mitigate against Chargebacks:

1. Review your transactions for fraud or any suspicious activity where possible.

2. Always ship your goods or services using known couriers and obtain a tracking number and keep a record of your shipping methods.

3. Utilise a shipper or courier that offers shipping insurance.

Use clear and concise Terms and Conditions and ensure your client is familiar with and has agreed to these terms prior to the completion of their transaction with you.

5. Maintain a steady and consistent stream of communication that offers information about the goods or services your client has purchased, as well as the delivery time frame.

6. Ensure communication with your client is timely.

How to increase your likelihood of winning a dispute

Your process for accepting payment by card, in person or online shouldn’t just be there to offer your clients greater levels of convenience, it should be convenient for you too in that it saves you time as well as reducing your risk.

The following checklist defines the ideal list of items that will lend greater degrees of certainty and credibility in the case of a dispute.

1. Your Representment documentation should be clear, well organised and delivered electronically. It should be delivered as a single report e.g. PDF

2. The supporting information you supply should include:
- Product name, description and web address if applicable
- Customer Name
- IP used to pay
- Billing Address
- Receipt/Invoice
- Communication
- Shipping Address and the date of delivery
- Shipping documents and proof of signature
- Tracking number and the courier or shipper used

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