Debit cards vs. credit cards when it comes to chargebacks
I want to get some feedback from merchants, agents, and other professionals in the processing industry.
Is it easier or harder to initiate a chargeback off a debit card? So far from what I've seen, doing a chargeback is next to impossible with a debit card compared with a credit card. The banks are far less willing to cooperate. Is this what other people are seeing in this industry too?
Hi Jeff. That's not a simple question to answer. I would be tempted to answer that a merchant is PROBABLY safer from chargebacks with debit rather than credit. But that depends on a lot of things, including, but not necessarily limited to, the following: Are we talking signature debit or pin debit? The precise circumstances of the incident. The policies of the debit card issuer. Here's what it's not so simple: Credit card transactions, being 'mini-loans', are subject to Regulation Z Truth in Lending rules and regs whcih are often pretty cut and dried. (I'm talking USA of course). On the other hands, most (not all) debit card transaction are NOT subject to these rules and therefore are a little more open to interpretation.
Assuming you are in th webhosting business / web design / Card-Not-Present (CPN) environment
I have done a chargeback befoere on my Debit Card from the issuing bank - Key Bank. Some issuing banks on a Debit card in a CPN environment will sometimes have 30-60 days to request a chargeback. In a CPN environment in which the PIN is not entered, basically the customer can do a chargeback (unauthorized charge, Services Not Provided or Merchandise Not Received, Cancelled Recurring Transaction, Late Presentment, Fraudulent Multiple Transactions, Counterfeit Transaction, Fraudulent Transaction - Card-Absent Environment, and Cancelled Recurring Transaction) are a few.
Now, if the chargeback is in a card present environment and the customer says Fraudulent Transaction / Counterfeir Transaction, but then bank sees a PIN entered, the issuing bank will probably deny the chargeback. Some banks might give the customer a one-time exception and send the customer a new bank card.
One of the more difficult things when using a debit card (it must have a card association logo (Visa / MasterCard) (or Maestro if the merchant has MSC) on it if it is used online, the merchant might do a pre-auth for - lat's say $100.00. Now that $100.00 is dedicated to the merchant for a couple of days. Some merchants will actually re-process the transaction - doing another $100.00. This means now the consumer has $200.00 tied up until the pre-auth is expired. If the consumer only has $150.00 in the bank account, the second transaction might be denied. And the consumer might do a chargeback, thinking the merchant is trying to get $200.00 instead of $100.00. So it is imperative that you, as a merchant, always try to get do the post-auth / sale on the first transaction.