Non Profit Credit Card Processing Chargeback Basics

A non profit credit card processing chargeback is a transaction that an issuer returns to a merchant bank as a financial liability and that, in turn, may be returned to a retailer. In fact, it reverses a sales transaction:

• The issuer subtracts the transaction amount from the cardholder's credit card account. The customer receives a refund and is no longer financially liable for the dollar amount of the sale.
• The issuer now submits a chargeback through the Association's system to the merchant bank for the disputed sale's amount.
• The acquirer will usually deduct the disputed amount from the non-profit credit card processing entity's account. The card acceptor loses this amount.
  

For non-profits, chargebacks are very costly. They can lose both the disputed amount that is being charged back and the related item. Non profits can also incur any internal costs for the processing of the chargeback. As they control how their employees handle donations, they can prevent most unnecessary chargebacks by simply educating their staff to pay attention to several crucial details.

Chargeback Reasons

The most common non profit credit card processing reasons for chargebacks are:

• Customer disputes.
• Fraud.
• Processing errors.
• Authorization issues.
  

It needs to be said that chargebacks are not always caused by something non profits did or did not do. Errors are also made by merchant banks, issuers, and consumers.

Non Profit Chargeback Responsibility

From an administrative view point, the most important interaction in a chargeback cycle is the one between an issuer and a merchant bank. The issuer submits the chargeback to the merchant bank, which may or may not decide to involve the non profit that processed the original payment. This processing cycle does not relieve non profits of the responsibility for taking action to prevent and limit chargebacks. In many cases, the entire extent of the organization's financial and administrative liability for chargebacks is stated in detail in the merchant agreement.

Invalid Chargebacks

The Associations have implemented advanced systems that greatly reduce the number of chargebacks and significantly improve the chargeback cycle. When the system detects an invalid chargeback, it is returned to the issuer that initiated it, and the non profit credit card processing entity and its merchant bank never see it. Most acquirers also have internal systems that automatically review exception items, enabling them to resolve problems before a chargeback is needed. Together, these two systems make sure that chargebacks the non profit sees are either those that only it can respond to or the ones that cannot be resolved in any other way.