How To Reduce Credit Card Chargebacks → Apr 6th 2009

As an e-signature company, a question often posed to us is "Do I even need a contract?" We often say that it depends on how well you know the other party.

In this era of web services the number of non-familiar parties doing business transactions is on the increase. With more people doing more e-business with more companies across the globe, the odds increase that the relationship between buyer and seller is a purely electronic one. Chargebacks are a particularly vexing issue which is on the rise according to some reports. You may never had tried this yourself, but credit card charges without a signed agreement can be almost instantly "reversed" simply by calling your credit card company.

Datawitness can help with this problem without slowing down commerce. Datawitness has been helping customers for years by giving merchants the proof they need to fight chargebacks and win. Take a look at the example case below.

The Hotel Owner

Business revenue thrives largely on advanced bookings via online or by phone. This is the basis for budgeting and cash flow. Reservations are booked in advance and are secured via credit card. These reservations are sometimes cancelled at the last minute or never cancelled at all. The customer does not show up.

The Challenge of Credit Card Charge Backs

The hotel, as per their policy and agreement, still charges the customer for their committed booking. Once the customer receives his credit card statement he or she calls the credit card company and informs them that they had not authorized any payment to the hotel. The Credit Card Company then contacts the hotel to provide proof of authorization of the booking because the customer has declined the payment. The hotel owner does not have a contract to provide to the credit card company to secure the payment of the funds. The cost to the hotel owner in this all too common situation is lost revenue in the thousands of dollars, empty rooms, no time to rebook the rooms, and management time!

We have been informed that the consumer now wins chargebacks 88% of the time. Five years ago that percentage was 13%.

The Credit Card Company’s View

Credit card companies want to ensure the integrity of transactions for both the buyer and the merchant. The hotel owner described above is defined as a “Card-Not-Present” merchant. This type of merchant (and 99% of all internet/phone based transactions) are card-not-present merchants.

What can you do if you are a Card-not-present merchant? You have a couple of options to help reduce chargebacks. One is to not process credit cards. That is probably not the option you want.

Another option is to use Datawitness to create the proof that you spoke to the buyer and the buyer agrees to the purchase. Datawitness allows you to create a contract and get it signed in mere seconds without having to change the way you do business…

Mitigate the risk

Visa states that you can be much more successful in defeating chargebacks if you can provide documentation that you:

• spoke to the cardholder and he or she now acknowledges the validity of the transaction, OR
• received a written commitment from the cardholder that he or she now acknowledges the validity of the transaction.

Datawitness provides you, the merchant, with the “compelling information that proves the cardholder acknowledges and agrees to the transaction”