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Helping Merchants with Retrievals and Chargebacks

By David H. Press

In working with our issuing bank clients and our MO/TO merchant clients to help them resolve their chargeback problems, we have observed some troubling practices from the acquirers' chargeback departments.

With the ongoing implementation of Visa's Re-Engineering Disputes Initiative (RED), designed to streamline the dispute resolution process, now may be the time to re-examine how acquirers/processors interface with merchants regarding chargebacks.

Retrieval Request Issues

When issuers want to see transaction receipts, they ask for retrieval requests. These include a paper copy or facsimile, or an electronic version of the hard copy. An acquirer must provide the issuer with a copy of the requested transaction receipt or will probably face a chargeback.

The issuer must accept a 'substitute transaction receipt,' or substitute draft, for certain transactions including automated dispensing machines, self-service terminals, automated fuel dispensers, recurring charges, MO/TO, e-commerce and preauthorized health care transactions.

When merchants involved in transactions like those listed above receive a retrieval request, they don't know how to respond. Because it relates to transactions with cardholder signatures, the information received along with the retrieval request from the acquirer does not help.

The acquirer should submit substitute transaction receipts for these types of merchants. If it is unable to do this, or does not make it its practice to do so, merchants must provide the acquirer with the required information to protect themselves from chargebacks.

When setting up these merchant accounts, it's important to include all the required data for each transaction. The issuers are able to make substitute drafts from the transaction information provided. Since the issuer has to pay the acquirer for fulfilled retrieval requests, and these costs have recently been raised substantially by Visa, the 'best practice' for issuers is to verify whether the substitute draft information is available before sending out a retrieval request to the acquirer. A properly set-up merchant will generate substantially fewer retrieval requests.

Chargeback Issues

A chargeback is a transaction that an issuer returns to an acquirer. This is generally assumed to be for something merchants did incorrectly. Chargebacks are usually equated with 'bad merchants,' but the problem also results from poor merchant training or improper set-up of merchants by the ISO/MLS.

However, many chargebacks are caused by some of the complex requirements in the regulations. Merchants must be trained how to obtain an authorization for each transaction; ISOs/MLSs should not assume that just providing merchants with a terminal and software is enough for them to get started.

The acquirer (and the merchant) has a right to re-present a chargeback to an issuer through a 're-presentment.' The information provided to merchants, along with response documentation for re-presentation, is geared toward retail merchants.

For card-not-present transactions, the information provided is often misleading or just plain wrong. The 'best practice' in these instances is to supply the merchant with the information necessary to rebut the chargeback based on the reason code.

In working with our merchant clients, we show them how to respond to chargebacks under each reason code. Merchants such as hotels, car rental agencies, MO/TO and e-commerce have special processing rules that must be followed to prevent chargebacks. Most chargebacks fall into a limited number of reason codes so teaching them how to properly respond to their most common reason codes is not difficult.

The biggest challenges for merchants are the oddball reason codes that really don't apply to their situations. These often result from issuer error or cardholder confusion. For example, we've had merchants receive chargebacks for "Cancelled Recurring Transactions," when the transaction was a one-time-only charge.

Some processors change the Visa/MasterCard reason codes they receive or put another number in front of the reason code, so it is difficult for the merchant to determine what the chargeback was for and how to respond. This can be particularly difficult when merchants change processors.

Some processors do not supply cardholder letters. Without knowing the reason for the cardholder's dispute with a merchant, it is difficult to properly respond to the chargeback for re-presentment to the issuer. All the dispute information received from the issuer should be forwarded to the merchant.

The merchant will then be able to determine how to respond. Cardholder letters will often include information refuting a chargeback right; these situations might include the "I changed my mind" scenario when a merchant has properly notified the cardholder of a 'no refund' policy.

Since Visa eliminated the second chargeback cycle through RED, it will be very important for merchants to fully respond to cardholder complaints. Without second chargeback rights, these cases may have to go to arbitration at Visa, which will cost the losing party a lot of money.

The pre-arbitration function Visa implemented will now take the place of second chargeback rights; instead, issuers will now send acquirers pre-arbitration notifications. If the re-presentment is not responsive to the chargeback or is not processed correctly by the acquirers' chargeback departments, acquirers will be forced to either accept the loss in pre-arbitration, or accept the loss through arbitration and pay the required fees.

Acquirers should clearly and consistently communicate RED operational changes and requirements to their merchants including:

  • Best practices for their business type
  • Contact number for questions
  • Training opportunities for merchants/staff
  • Training materials
  • What the move to the new dispute resolution process means to Visa merchants/processors
  • New timeframes for sales draft and/or documentation processing
  • Support documentation changes and requirements Visa offers a plethora of reference and education materials on procedures and processes. Contact your member bank for assistance in ordering materials for your use and to distribute to your merchants.

David H. Press is Principal and President of Integrity Bankcard Consultants, Inc. Phone him at 630-637-4010, e-mail or visit

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