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Know the difference and who to alert.
Credit Cards and Debit Cards Explained
While both credit and debit cards eliminate the need to pay with cash, they are not the same. The primary difference is where the funds come from.
A credit card provides a line of credit to the cardholder. The issuer essentially loans money to the cardholder for every purchase that is made, and the cardholder is expected to repay the issuer at the end of each billing cycle.
When a purchase is made with a debit card, funds are immediately withdrawn from the associated checking or savings account.
Credit card purchases are charged against a line of credit.
Debit card purchases withdraw money directly from a bank account.
It’s important to understand these differences because the source of the funds may determine which law governs the transaction.
Credit and Debit Dispute Rules
Before we outline the different dispute rules, let’s first review where the rules come from.
There are three different sets of regulations that govern transaction disputes.
The Electronic Fund Transfer Act (Regulation E) establishes the rules associated with debiting a bank account.
The Consumer Credit Protection Act (Regulation Z) establishes the rules associated with managing consumer credit.
The card brand regulations establish rules for using brand-endorsed payment cards (Visa®, Mastercard®, etc.).
Issuing banks must abide by federal laws, so all Regulation E and Regulation Z requirements should be upheld when transactions are disputed. However, extending additional card brand chargeback rights is optional.
Card brand rules typically offer even greater consumer protections than the legal regulations. Issuers may choose to extend this coverage to their cardholders, but they technically don’t have to.
WHAT THIS MEANS FOR MERCHANTS
The term ‘chargeback’ is often thought to be synonymous with ‘transaction dispute’. Technically, the two aren’t interchangeable.
All chargebacks are transaction disputes, but not all transaction disputes are chargebacks.
Regulations E and Z give cardholders the right to dispute transactions, but only the card brands offer a chargeback process.
Why does that matter?
Think about your dispute management strategy. What does it entail? Are you focused solely on activity facilitated by the card brands — alerts, order validation, and chargebacks? If so, you might not have a complete understanding of the customer experience.
Chargeback data is incredibly valuable. It can help you identify hidden issues and resolve problems at their source. However, there are several reasons why a consumer complaint might not ever make it to a chargeback — an issuer’s choice to limit protections is just one of the reasons. Therefore, chargebacks shouldn’t be the only metric you use to gauge customer satisfaction, the effectiveness of your processes, and the risk of potential revenue loss.
Focus on creating an exemplary customer experience — one that ensures satisfaction and resolves issues without the need of a chargeback.
Preventing Debit and Credit Chargebacks
Dispute management techniques aren’t generally divided up into tips for debit card transactions and tips for credit card transactions.
Instead of basing a strategy on the type of card the customer used, it would be more accurate to focus on the type of transaction: card-present or card-not-present.
Preventing Card-Present Chargebacks
A card-present transaction takes place when the cardholder’s card is physically present at the time of the purchase. The card is handed over to a sales associate to be read with a point-of-sales (POS) terminal. These in-person interactions typically occur within a brick-and-mortar store.
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x SignedApproval™ Instant chargeback fraud reporting to bank security authorities
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x SignedApproval™ Instant chargeback fraud reporting to bank security authorities
x SignedApproval™ Instant chargeback fraud reporting to bank security authorities
