Chargebacks are a significant challenge for online retailers in Brazil. The high chargeback rate resulting from frequent fraud in Brazil requires merchants to exercise caution and protect themselves from fines and penalties imposed by acquirers.
But why is it so easy for consumers to request a chargeback and, at the same time, so difficult for merchants to contest it? This is what we will clarify in this article. Check it out!
What is a chargeback?
A chargeback is a consumer protection mechanism for credit card purchases. When a consumer encounters an issue with a particular purchase, especially when they do not recognize the transaction as legitimate, they can dispute the charge with the issuing bank and request a refund of the purchase amount. It’s important to understand that a chargeback differs from a refund and that refunds should be requested directly from the store.
In other words, a chargeback is a request to cancel a payment made by the cardholder with the issuing bank. The bank notifies the card acquirer, which, in turn, informs the payment processor or the retailer (if there is a direct connection with the acquirer’s system). The amount is debited from the retailer’s account, and the money is returned to the cardholder’s account or their credit limit.
Chargeback vs. Cashback: what’s the difference?
The term “chargeback” is often confused with “cashback”. However, cashback is an incentive program offered by some financial institutions and stores where consumers, when making a purchase, receive a portion of the purchase amount back in the form of cash or credit for future purchases.
What are the main causes of chargebacks?
Two reasons can lead to chargebacks: the cardholder does not recognize the charge on their card statement, or the transaction does not comply with the commercial agreements established with card acquirers.
Fraud, especially effective and friendly fraud, is typically the cause in the first scenario. Other causes include incorrect or unauthorized charges, undelivered products or services, and non-compliance with the products or services received.
It’s also important to note that credit card acquirers and banks usually penalize retailers with high chargeback levels. For example, acquirers can fine merchants who receive many chargebacks; in extreme cases, they may even cancel the merchant’s account. Banks, conversely, can identify merchants with poor scores and block transactions, resulting in lower conversion rates. For this reason, it’s crucial for online businesses to find ways to keep their rates under control.
How to request a chargeback in Brazil?
Brazil has one of the most comprehensive consumer protection legislation in the world. The Consumer Protection Code was introduced in September 1990 and has been updated several times since. The document outlines consumer rights and seller obligations concerning consumers.
Thanks to the protection they enjoy, it’s relatively easy for consumers to request a chargeback in Brazil: a simple call to the issuing bank can initiate the process. All requests should be reviewed before the chargeback is finalized in favor of the buyer, particularly to prevent malicious requests.
However, it’s important to note that a successful chargeback dispute favoring the retailer is infrequent, especially for businesses that sell digital products.
How can a merchant contest a chargeback?
Despite the difficulty in contesting a chargeback, retailers still have this right. Typically, to dispute a chargeback, retailers must provide various documents, such as proof of delivery signed by the buyer, records of any communication with the consumer, and a Brazilian invoice.
Regardless of the reasons customers may have for requesting a chargeback, it’s essential for retailers to try to contact them to understand what is happening. In some cases, the request may be a mistake, such as when the cardholder does not recognize the message that identifies the purchase (soft descriptor) on their card statement. If this happens, even if the dispute is lost, the retailer can often recover the customer’s payment so they can continue using the product or service.
When this happens, it’s necessary to ensure that the second payment is made using an alternative and secure payment method, free from chargeback risks, such as Pix or Boleto.
In general, fraud and chargebacks are the main adversaries for online businesses. Besides harming retailers’ profit margins, both create extra work and additional processes that online stores must follow.
However, regarding chargebacks, online businesses should always adhere to the principle of “prevention is better than cure,” meaning that merchants should implement any available measures to control their fraud and chargeback rates and keep their financial health intact.