Chargebacks - What they are and how to prevent them

What is a chargeback?

A chargeback occurs when a cardholder successfully disputes a transaction processed by your business and has it reversed on their Visa or Mastercard account.

What is a chargeback fee?

A chargeback fee is a cost imposed on merchants when a customer disputes a transaction and requests a reversal through their bank or credit card issuer. This fee covers the administrative expenses associated with processing the dispute and serves as a reminder to maintain accurate records and follow best practices to minimise future chargebacks.

The chargeback process

When a cardholder or card issuer has any reason for concern regarding a credit card, Visa debit or debit Mastercard transaction, a dispute can be raised to authenticate the transaction. The process is as follows:

1. If the cardholder advises that they didn’t make the transaction, or haven’t received the goods or services they purchased, they send a formal advice of dispute to their card issuer. 
2. NAB receives the chargeback notification and notifies you, the merchant, via email, letter or another secure channel. NAB is provided with strict timeframes by Visa and Mastercard to contest any chargebacks received. The fastest and most efficient way to receive chargeback notifications is to register for our free Electronic Chargeback Reporting service. To register for this service email merchantchargebacks@nab.com.au. For further information contact us on 13 22 65.
3. If you, the merchant, disagree with the dispute claim, you can respond to NAB by providing supporting evidence. 
4. If you are liable for the dispute, then the transaction amount will be debited from your settlement account and a chargeback fee will apply.

Common causes for chargebacks

• Manually entering card details instead of tapping, inserting or swiping the card, which increases the likelihood of fraud. 
• Requested transaction data not received.
• Requested or required item illegible or missing.
• Required authorisation not obtained.
• Transaction amount differs to purchase amount.
• Duplicate processing.
• Card not valid or expired.
• Cancelled recurring transaction.
• Late presentment of manual vouchers.
• Cardholder dispute – defective or not as described.
• Non-receipt of merchandise or services.
• Cardholder didn’t authorise the transaction – potential fraud. 

Common types of chargebacks

How to contest a chargeback 

If you wish to contest a chargeback, you can provide us with all the details relevant to the transaction and any verification of the cardholder. The information and documents required will depend on the dispute reason, and may include:

• a signed copy of the transaction voucher or receipt
• a copy of the order or invoice or proof of delivery 
• a copy of any correspondence received by you from the cardholder.

We ask that you keep a copy of all documentation you send to NAB.

What is a card not present liability?

 A transaction is considered 'card not present' if a card number is manually entered into the terminal or is processed online. Card not present transactions bear a high risk to a merchant as both forms of transactions do not require a PIN number to authorise the transaction, leaving the merchant liable for chargebacks on card not present transactions (excluding online EMV 3D Secure transactions).

Ways to avoid chargeback

If a dispute is raised by the cardholder and you as the merchant are found liable, you’ll be required to pay the funds back to the cardholder, as well as any applicable chargeback fees. You can help to reduce chargebacks and protect your business from fraud by using the following guidelines.

Process cards safely

Take payments in person

Wherever possible, use the physical card at the point of sale to process a transaction, and don’t by-pass the security process by manually  entering the card details. If the customer is present, always advise the customer to swipe, insert or tap their credit card instead of manually entering the transaction. 

Don’t let customers handle the EFTPOS machine

Make sure the terminal is never handed directly to the customer. Customers may be able to rekey a larger amount or change the transaction to key entry and complete fraudulent transactions on the terminal.

Process refunds to the same card

Never process refunds to a different card. Always process refunds back to the credit card the original purchase was made from. If you are unable to do so, please contact NAB via the Merchant Helpdesk on 1300 369 852 for assistance.  Learn how to protect your business from card fraud and payment scams.

Get delivery confirmation

Always deliver goods or services as advertised or promised, and keep your customers informed if there are any delivery issues. Obtain and keep records of signed delivery confirmation to ensure that goods were collected or received by the true cardholder.

Be aware of unusual transactions

Be careful when accepting large payments if  the card is not present. Keep manually entered transactions to an absolute minimum. Do not split transactions with multiple cards and be wary of multiple rejected transactions on multiple cards.

Resolve the dispute directly

To prevent a chargeback from occurring, you can try and resolve the issue directly with the cardholder.

Action requests from NAB

Act promptly on any requests from NAB to provide transaction receipts.

Be-careful when re-submitting transactions

If you think a transaction isn’t completed correctly and you process the charge twice,   be aware that the cardholder may dispute this under a duplicate charge if both transactions go through.

Set up online protection

Use Visa Secure or Mastercard SecureCode for eCommerce transactions for additional protection and to reduce risk. Read about the industry framework designed to mitigate card not present fraud.

Educate your business

Ensure you and your staff learn how to minimise credit card fraud. If you’re an eCommerce merchant, learn more about  protecting your business online.

For further information regarding different fraud types and scam scenarios that could affect your business, please visit the Scamwatch website, opens in new window or Australian Cyber Security Centre website, opens in new window.

How to refund a customer

You must only refund a credit card transaction to the same credit card used for  the original transaction. If the purchase has been made via a card, do not refund to another card or via cash or cheque. This will help protect you against being scammed.

Following the correct procedure helps to avoid chargeback requests and ensures you, the merchant, have proof of the transaction.

New Visa rules for Card Not Present fraud disputes

From 15 April 2024 new rules apply to 10.4 (Card Not Present) fraud disputes. The rules are designed to protect cardholders and provide evidence they have authorised the transaction within seven calendar days of the transaction.

The rule change also applies to recurring MITs. The merchant must provide the evidence from the initial setup to satisfy the requirements of two prior non-fraud dispute transactions matching the current fraud dispute.

What you need to do

The following rules are compulsory for all Card Not Present fraud disputes.

For all fraud dispute transactions, you must collect evidence of these core data elements:

• the IP address
• device ID or fingerprint
• delivery address
• customer account login or ID of the customer or cardholder.

There must be two transactions from the same customer that have aged beyond the issuer dispute window and were not reported as fraud more than 120 days ago. 

The two transactions and the fraud transaction must have two of the data elements matching, one of which must be the IP address or device ID or fingerprint.

How to locate data elements

• Customer account login or ID is located under the customer profile that was created by the customer.
• Delivery address is the address you delivered goods to.
• Device ID isn’t always accessible for all merchants, so device fingerprint is also evidence. Consult your User or Integration guide to learn how to locate this information.
• Consult your User or Integration guide to learn how to locate the IP address.

The dispute process

How you’ll be notified of a dispute

When a transaction is disputed by the cardholder, you'll receive a formal notification from NAB in the form of a Chargeback and/or a Retrieval Request (Refer to Section 10 of the guide contained in the notification). 

It's important for you to read these notices and respond to the request within seven calendar days. Failure to do so may result in a legitimate transaction being charged back to your settlement account.

Where to send evidence

Please email your evidence to the Merchant Chargebacks Team at rfi.responses@nab.com.au. You'll receive an automatic reply to acknowledge that we've received your evidence. For general enquiries, please contact merchantchargebacks@nab.com.au.

How to dispute a customer’s claim

To dispute a claim the customer must have purchased goods or services from you previously at least 120 days from the claim date and were not reported as fraud.

If an earlier transaction from the customer that wasn't previously disputed was originally a credit transaction, the 120 calendar days does not apply.

If the customer purchased goods or services more than 120 days ago without any disputes and now wants to raise a fraud dispute for a recent purchase, you need to provide evidence that the initial purchase has the same:

• device ID
• delivery address
• IP address and login ID or the same device fingerprint and IP address as the disputed transaction.

If proper evidence is provided by the acquirer, the dispute will be denied.

How to avoid Card Not Present fraud

Learn about protecting your business online with EMV 3DS. For advice on how to install an approved authentication service that provides you with a high level of protection against disputes, contact NAB or your gateway provider.

Reasonable fees apply to EMV 3DS. Please call 1300 369 852, 7.00am to 7.00pm seven days a week, to speak with a consultant.

Read more about reducing Card Not Present fraud.