Payment Processing

How Credit Card Companies Handle Chargeback Fraud

Payment chargebacks present a challenge to merchants in the best of times. But for those working in government services, such as the court system, these payment disputes can reach a level of complication that frustrates employees and eats away time better spent on other tasks. Here’s how chargeback fraud works and what you can do about it.

What are chargebacks?

In simple terms, a chargeback is a demand by a credit card company for a merchant to make good on a fraudulent charge or disputed transaction.

Reasons for chargebacks include clerical errors, such as double billing; customer dissatisfaction; fraud; or a customer not recognizing the charge.

The chargeback process

The payor disputes the charge. The bank that issues the card reviews the disputed charge to determine the validity and marks it as valid or invalid. With a valid dispute, immediate reimbursement is issued to the payor. 

Then the handoffs begin. The issuing bank sends the chargeback to the card network (Visa, MasterCard, etc.), which sends it to the acquirer, the financial institution that owns the merchant’s account and has responsibility for collecting the charge. The merchant receives the chargeback and responds.

Complications for government agencies

In its blog post 7 Mistakes Recurring Merchants Make When Fighting Chargebacks [1], Finextra calls chargebacks a “complex, expensive and aggressive problem.” Merchants must understand the common reasons for chargebacks and disputes, know the common cardholders and issuing banks initiating chargebacks, evaluate the percentage of chargebacks related to fraud, and understand the reasons for unsuccessful representment [reversal denial]. And the “chargeback dispute process does not favor recurring merchants,” it says.

The response requires an aggregation of data coming from various sources, such as pertinent processors and online platforms. Required information includes things like proof of delivery, signed delivery receipts or other proof of delivery for physical goods, documented communication email or other documented communication with the cardholder, confirmed CVV Evidence that the CVV was provided by the cardholder, acceptance of terms and conditions signed or a similarly authenticated contract of acceptance, AVS Check Evidence that the AVS check confirmed a billing address match, and refund issued evidence that the merchant issued a refund to the customer, all of which has to be gathered by the merchant’s employee or representative.

Chargeback fraud costs you in time and money

It’s a lot of information to gather and manage. A 2015 Javelin study showed that chargeback management consumes between 13 and 20 percent of an operational budget and takes away budget from other revenue-generating projects and departments.[2]

In his guest analysis for, Verifi CEO Matthew Katz points out that chargebacks cost merchants fines, fees, extra labor costs, and can result in the loss of processing privileges.[3] He points out that the level of expertise and understanding needed to handle chargebacks is significant.

Government employees may face the extra challenge of payments made by payors not associated with the account. For instance, parents or friends may post bail or pay a tickets or bill on behalf of those who owe, which increases the likelihood of a payor not recognizing the charge.

Hire a payment processor that handles chargebacks.

So, what can you do about chargeback fraud? Hire a payment processor that handles it for you.

Researching and responding to chargebacks, fraud or not, by payors requires time, effort, and energy better spent by those involved. Katz says, “Using an experienced, third-party intermediary that connects merchants and issuers streamlines processes and allows for disputes to be resolved more efficiently with the customer.”

“Merchants of any size can benefit from working with a representment partner, enabling them to focus on their core business and let trained experts do the heavy lifting,” Finextra says, pointing out that this type of partnership can lead to a higher recovery of funds, positively impacting your company’s bottom line.

FivePoint Payments takes on the burden of the time-consuming, but necessary tasks that come with chargeback fraud, freeing you up to concentrate on your job. When a chargeback occurs, FivePoint does all the work. Our expert staff reviews the chargeback request, performs all of the research, prepares and submits the necessary responses—all within the prescribed timelines. Decrease the time and money you and your team spend dealing with chargebacks by allowing FivePoint to take them on as part of our government agency payment processing service. 

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FivePoint Payments simplifies and modernizes the process of paying government agency fees and fines, making it more efficient for both the payee and the payer. We do this through innovative software applications and hardware solutions that can be integrated with government agencies’ current systems.


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