If you’ve been operating for any length of time, you know that dealing with chargebacks is one of the most frustrating aspects of running a nightclub. Basically intended as a consumer protection measure, chargebacks can now affect your business adversely and cost you a lot of money, time, and effort.
Chargebacks are an inevitable part of running a business that you’ll have to deal with sooner or later. For most of the businesses, chargebacks will only be occasional trouble. For others, a high chargeback rate can lead to being listed as a “high-risk merchant”. While we can’t make your business chargeback-proof, we can help you to reduce the chargeback incidents and suggest a few tips on dealing with them when they unavoidably happen.
This article will give you a thorough background on what chargebacks are, why they happen, and how to deal with them particularly in pubs, bars, and nightclubs. We’ll also discuss the many steps you can take to lessen the number of chargebacks you’ll incur when running your business.
What is a chargeback?
A chargeback occurs when a customer contacts their credit card issuer or bank and disputes a charge on their account, and requests a refund.
It typically occurs when they recognize a charge on their account that they don't recognize or are unhappy with.
Reasons for chargeback in Hospitality
Chargebacks can occur for a wide variety of reasons in pubs and nightclubs. Most of the reasons will fall into one of the following broad categories:
(1) Clerical error
(2) Service dissatisfaction
(3) Friendly fraud.
Here are just a few examples of the possible reasons you might experience a chargeback:
Clerical Or Technical Error
Between you, your merchant services provider, and the customer’s issuing bank, there are plenty of opportunities for someone to make an honest mistake or for a technical glitch. These kinds of errors include the following:
- Expired credit or debit card
- Duplicate billing
- Incorrect amount billed
- Refund authorized but never credited back to the customer
- Issuing bank error
Sometimes If the customer isn’t happy with how your services turned out, they might request a chargeback without contacting you first. Customers can be dissatisfied for any number of reasons. Here are some of the more common ones:
- Services not as described, poor quality, etc.
- Item ordered were not served
- The customer attempted to discuss poor service but claims to have been refused
- The customer doesn’t recall authorizing the transaction
Fraudulent transactions account for well over 50% of all chargebacks and are a common source of inconvenience to merchants and customers alike. Fraud can take one of three forms:
- Fraud on the part of the customer - claiming not to have used the service when they actually did.
- Fraud on the part of a third party - the card was stolen, or cardholder data was obtained illegally.
- Fraud on the part of the merchant - using the customer’s card data to make additional, unauthorized transactions.
Note that chargeback policies and procedures are primarily designed to protect consumers from this type of fraud.
How does the Chargeback resolution process work?
Regardless of the issuing bank or credit card association that sponsored the card involved in the dispute, every chargeback is investigated and resolved following a standardized process.
- Customer: The customer requests a refund from the issuing bank to initiate the chargeback resolution process.
- Issuing bank: Based upon evidence provided by the customer the issuing bank will review the circumstances surrounding the disputed transaction. The issuing bank then files a reason code to categorize the assumed reason for the chargeback.
- Processing bank: The merchant’s processor reviews the chargeback. If the processor has evidence that the chargeback is not valid, it will act on the merchant’s behalf to invalidate it. Otherwise, it will levy the chargeback fee and pass along all the information it has to the merchant.
- Merchant review: The merchant/you now have the opportunity to review the chargeback and present any additional evidence that could affect the outcome. Note that this is usually the first time in the chargeback resolution process that you will be informed of the circumstances surrounding the chargeback.
- Re-presentment: The processor re-presents the chargeback based upon any additional evidence offered by the merchant.
- Final decision: The issuing bank reviews all evidence presented and issues a final decision. If the chargeback is invalidated, funds are returned to the merchant. Most processors, however, will not refund the chargeback fee even in cases where the merchant prevails in this process.
Preventing Chargebacks in Nightclubs and Pubs
- Excellent customer service: Many chargebacks can be easily avoided, or even rectified if there is open communication between the consumer and you. This works both ways: consumers should always at least attempt to resolve the situation through communication with the merchant before resorting to requesting a chargeback. This step is particularly important in nightclubs and pubs.
- Confirm the expiration date of all credit/debit cards: Instruct your staff that they should never accept an expired card. Get the customer’s signature for magstripe-only cards.
- Provide your contact details on every possible channel: Card processing errors can easily be fixed by providing consumers with your contact information, whether on the receipt or on your website, so they can reach you directly and have the error corrected without initiating a chargeback.
- Optimize your billing descriptor: Chargebacks often can be a matter of a misunderstanding, specifically because the consumer is unclear about the transaction details that appear on their credit card statement. Be sure to let the consumer know what business name will appear on their statement.
Precautions to take
- Keep detailed records of all transactions: Chargeback fraud by consumers is becoming more common all the time. It’s all too easy to make a transaction and then report it as a fraudulent transaction to the issuing bank. On many occasions, these cases are lost by the merchant for a lack of providing simple and clean records.
- Ensure your sales receipts are complete and legible: They can be clearly understood by the consumer, as well as a valid piece of proof during a chargeback dispute. A clean receipt should be the first step in fighting a chargeback.
- Save all ID card information: We recommend that you retain their receipts and ID card records in an organized fashion, so you can quickly and accurately provide information upon request.
- Always respond to retrieval requests: A retrieval request, also known as soft chargeback, occurs when a credit card issuer asks a merchant for the details of a transaction to validate it. Make sure these requests are responded to promptly.
Responding to chargebacks
In an ideal scenario, you’d be able to respond to credit card chargebacks alone. You could respond with your rebuttal letter, provide your evidence, and wait optimistically for a win.
The chargeback process is cumbersome, slow, and difficult to navigate. You need to have the right solutions in place. An end to end chargeback response platform works for you to represent chargebacks. It helps you to collect data and information about customers and provides you the tools you need to correctly respond to credit card chargebacks. You need real solutions and experts working for and with you to help provide exactly what your business needs.