Chargebacks

What Is a Chargeback?

Chargeback refers to a situation whereby a cardholder disputes a card transaction and tries to get their money refunded. In this case, the cardholder is able to request a chargeback directly to their issuing bank rather than to the merchant, and is generally able to raise a chargeback 6 months after purchase.

The chart below shows a typical tokenization flow.

What Can Cause a Chargeback?

The circumstances usually involves identity theft, unauthorized transaction, or fraud. Chart below provides typical scenarios for a chargeback and describes the process in dispute of a chargeback:

The merchant needs to contact the customer, and clarify regarding the chargeback reason, which can be either:

1. Buyer does not want to use the product
2. The product does not meet the expectations of the buyer
3. Buyer is not happy with the service of the merchant

When a customer raises a chargeback to their bank, Xendit will get a notification from the acquiring bank about the chargeback. And we'll let you know about the chargeback details.

Chargeback Prevention Methods

Chargebacks are a pain point when having cards as a payment option. There will always be some users who do not pay attention to their transaction details when checking out, and ends up submitting chargeback.

Here’s how you can prevent this from happening:

• Make sure customers are aware of their billing details: name of charge source, amount, and date before they proceed to charge their card
• Respond to customers’ inquiries ASAP
• Have a clear return - refund policy in your Terms & Conditions
• While it might reduce customer experience, having authentication (3DS) enabled before charging gives you more protection from chargeback liability

Chargeback Timeline

Generally, a cardholder can issue chargeback until H+120 from the date of transactions.

• Retrieval Stage: H+30 from the date acquiring bank receives the chargeback case, informs Xendit, until they submit the evidence to issuing bank
• Chargeback Stage: H+30 from the date acquiring bank receives the news of Retrieval Stage, informs Xendit, until they re-submit the evidence to issuer
• Arbitrage Stage: H+30 from the date acquiring bank receives the news of Chargeback Stage, informs Xendit, until they submit the evidence to issuer

How to Fight Chargebacks

So, you've received a chargeback, what can you do about it? There are three possible actions that you can do:

Provide Chargeback Evidence

When determining a judgement for a chargeback, transparency will prevent you from losing. Transparency means that you have recorded and maintained all interactions with the cardholder, details of the transaction, and anything that will confirm that the cardholder acknowledged/aware of the product that they were purchasing. Some examples of evidence that you can provide:

1. Screenshot of the account that the cardholder used
2. Screenshot of the invoice of the product that the cardholder bought + screenshot of the product
3. Screenshot of the payment details (e.g. masked card number, name, email, phone number, shipping address, etc.)
4. Screenshot of the invoice / payment reference from Xendit (external ID / order ID) with the reference details from the merchant that match
5. Screenshot of the shipping proof
6. Screenshot that the cardholder has received the product
7. Screenshot that the cardholder has used the product

The evidence can be sent to chargebacks@xendit.co. The more relevant the evidence that you send, the more you are likely to win the chargeback. If Xendit does not have enough evidence that can support a successful reversal of the chargeback, we will request additional documentation. Certain period of time will be given (depends on the issuing bank) to submit all documentation to us.

Request Chargeback Cancellation

If you've communicated with the cardholder, and they've agreed to cancel their chargeback, we'll need to submit a report to the bank, Xendit will need to have the following information:

1. Full name
2. Date of transaction
3. Amount of transaction
4. Reason of chargeback cancellation
5. A scanned identity (KTP)
6. A scanned front side of the credit card
7. Confirmation that the cardholder has informed their issuing bank about the chargeback cancellation.

Kindly download the form in the following link, and provide it to the cardholder. For the purpose of information privacy of the cardholder, please direct the customer to send it to chargebacks@xendit.co.

We'll use the information as evidence for the bank to cancel the chargeback.

Lose the Chargeback

This is the least favorable outcome, and we'd like to avoid this if possible. But here's what might cause you to lose a chargeback:

1. Not enough evidence: The acquiring bank considers there are not enough valid evidence of the transaction.
2. No authentication (3DS). Certain acquiring banks require 3DS as a way to protect merchants from being liable for chargebacks. If you're skipping 3DS with Xendit, make sure you have all the other supporting evidence.

If the acquiring bank deems that the supporting evidence to be not enough, Xendit will be informed, and there would be additional time to gather more evidence.

The bank will review the evidence received and notify Xendit of the chargeback results. 3 chargeback results :

1. Win, if the bank doesn't notify Xendit, the chargeback is declared a win. There are no further actions for this result.
2. Lose, if the bank declares a chargeback, the bank will notify Xendit and debit the Xendit account. After that, Xendit will notify the merchant that they will make a deduction to their dashboard balance for the chargeback liabilities. Charges for chargebacks can occur at any time according to information from the bank since the chargeback results come out.
3. Arbitration, if the bank declares further chargeback to the Arbitration stage, Xendit will notify the merchant to be able to prepare documents for evidence that are more complete than the previous documents and await information on the results from the bank.

The bank notify Xendit regarding the results of chargeback maximum of 6 months after the date of sending merchant evidence against the chargeback to the Bank.

Arbitration

What's arbitration and how to fight it? After the first two steps of evidence verification from the bank, there is a possibility where the issuing bank deems the evidence to still be not enough. If so, the issuing bank can then raise the chargeback to arbitration. Xendit will be informed about the arbitration step, and you'll need to make the decision whether you want to challenge the arbitration or not. If you want to challenge, then we'll require to collect further evidence, send it to the acquiring bank, then the issuing bank. If you win, you'll win the chargeback. However if you lose, you'll have to pay for the chargeback and the arbitration fee ($500).

Fraudulent Cases

How do you know if you're facing fraud cases? There are several types of fraud that you might encounter in card transactions. Below are the types of fraud that are documented (so far).

1. Merchant Fraud

   • If you're an e-commerce that onboards merchants/sellers, please be aware of the potential of merchants who abuse promo/cashback/points by buying back their own goods.
   • Certain cases might occur where your staff take hold of your system, and making fake purchases for their own benefit.

2. Buyer's Fraud

   • Your online marketplace do not have a clear refund policy in your Terms & Conditions, and buyers abuse this by raising a chargeback. Especially if your products are digital goods/services where the products are intangible.
   • Identity fraud: People who steal card information from another person, and makes the purchase under their name, with a different address than their registered address.
   • Friendly Chargebacks: People who are aware of how online card transactions work, and abuse merchants that do not have authentication (3DS) by requesting a chargeback and claiming they are not aware of the transaction.