Merchants (sellers, service providers, mall owners or retail traders etc) lose lots of money when using POS devices/systems to take payments for goods sold or services rendered. Some reasons why such losses occur include genuine, but time-bad and false chargeback claims, ineffective processes in controlling,reconciling and review of POS transactions on a daily basis and, manual processing interventions (from the banks’ end) when crediting customers accounts with previous day’s POS proceeds. This manual, bulk payment-based crediting is what gives rise to unexpected huge debits (reversal) being thrown into a merchant’s account in respect of a “previous credit” that the merchant is purported to have received (the usual explanation by banks is that you got the credit earlier hence, the debit reversal). Eight other reasons why you may lose money as a merchant, to the POS/ATM payments system include:
- Insufficient financial resources to hire a consultant to help with the revenue assurance, reconciliation and claims process on a consistent
- Inadequately skilled employees who are unable to monitor, reconcile and review POS transactions on a daily basis, raising exceptions where necessary and follow up
- Lack of time by the owner to monitor and reconcile POS transactions(where the owner is also the manager (Owner-Manager models prevalent with SMEs)
- Inadequate skill by the owner to monitor and verify that transactions consummated previously finally gets deposited into the account(in an owner-manager situation)
- Poor education by the banks and other financial intermediaries involved in the POS transaction chain e.g. Interswitch
- Bulked or lumped deposit of POS transactions by banks (Note; Nigerian Banks do not credit your bank with individual POS transaction rather they will bulk-credit your bank account 24 hours after the transaction occurred.
- Delay in crediting POS transaction proceeds into your account(takes between 24-72 hours in most cases)
- Mistakes by your bank when crediting your account with your POS sales proceeds and switching/telecommunications network issues.
As a merchant using device POS device to take payments, you stand the risk of losing your money principally through:
- Poor/ineffective reconciliation/proving of the POS transactions on a daily basis
- The third but less frequent means that you many lose money to the POS pipeline as a merchant is mistakes by your bank when crediting your account. Some may actually credit you less than your due on any particular business day. This may not be fraudulent or intentional, but may be out of carelessness, negligence or work pressure. That’s why you must always crosscheck and confirm that what came in through the POS/ATM system by way of payments from customers actually get deposited in your bank account.
A chargeback is a transaction reversal claim that occurs when there is a failed POS transaction between a Merchant and her Customer/cardholder. Some banks call it “Not on Us Claim”. A Chargeback serves as a form of protection for both the customer and merchant against fraudulent or unintended loss of money resulting from failed POS transactions.
Types of Chargeback
- A Chargeback may be genuine and authentic, meaning the transaction actually took place but failed and the customer was charged wrongly without being given value;
- A Chargeback may also be false and fraudulent, meaning the transaction may not have occurred between your organization and the customer or it did occur, but the customer was charged wrongly in one instance and accurately in another instance and value was given. This usually occurs when different banks POS machines are used and one, probably the one first used, failed and the second transaction in the second POS device came through successful.
Fraudulent customers will usually attempt to log chargeback dispute claims on merchants through the two banks involved. If you account reconciliation team is not alert and timely in responding to ‘Not on Us” claims by banks, your money will be lost once the response time window is passed.
Chargeback fraud is the fraudulent request for a return or refund of money for a transaction that was successfully consummated and value was given to the customer. It is a fraudulent attempt to regain the transaction naira amount while holding on to the goods that were purchased or services that were rendered. There are thousands of stories illustrating instances of chargeback fraud. Chargeback frauds are responsible for 56% of a merchant’s total fraud losses according to research.
Parties Involved in the Chargeback Process Flow
The customer is a cardholder who makes a purchase with a merchant. It is usually the cardholder who files and initiates the chargeback process through his or her bank.
The issuer issues payment cards like credit or debit cards to the cardholder. The issuer is ‘the underwriter’ of the cardholder’s account and is responsible for funds disbursement from the cardholder to the merchant’s account.
Issuing Bank Processor
The issuer’s processor verifies the customers’ account balances and authorizes or denies transaction requests that are received through the card network.
Visa, MasterCard, American Express, and Discover are the four major card networks. Each network provides a pipeline that transfers payments between issuers and acquirers. They also manage the settlement process between both parties.
The acquirer is the institution responsible for acquiring authorization through the card network. It receives funds on the merchant’s behalf from the customer’s issuing bank. At this time, the acquirer settles the funds collected from the processing fees, network fees, and interchange fees.
Merchant Account Processor
The merchant account processor is a company that partners with an acquirer to process payments on the merchant’s behalf.
Merchant’s Commercial Bank Account
The acquirer receives the funds from the issuer through the card network’s settlement process. The funds will be deposited to the merchant’s commercial bank account. The merchant commercial bank account is the ultimate destination of funds. These funds were transferred from a cardholder.
However, the transferred funds can be used for chargebacks. When that happens, the acquirer automatically withdraws the funds from the merchant commercial bank account. And the funds are moved back to the issuer/cardholder’s account. It’s quick and painless—for the cardholder.
The payment gateway does the complex work. It builds secure connections to merchant account processors. Think of this as a “virtual” credit card terminal. It allows a merchant to submit payments to a processor through the internet. Payment gateways also provide fraud filters, recurring billing payments, and other valuable functions to assist ecommerce companies.
A business, company, brand or other relevant party who provides a good or service in exchange for payment
How to Resolve Charge Back Issues
Cardholders will always file disputes with their issuing bank where there are cases of wrong POS charges. These banks are often called “issuers”. When a dispute is filed, the acquirer (merchant’s bank) will debit the transaction amount from the merchant’s account. The merchant will then need to gather compelling evidence to show that the transaction was “Approved and Successful or Unsuccessful” .The funds will return to the merchant if the evidence favors an overturn of the cardholder’s dispute.
Since Chargbacks are time-bound transactions, the first way to ensure you promptly respond to charge back issues from your banks is to open an email account and ask your bank to link that email account to your bank account. This is the way banks contact you in cases of Chargeback claims. Ensure also, you link your email account to your mobile device (where necessary) to ensure you receive and respond to these claim emails promptly. If you fail to do this, your money will be taken after the statutory 48-72hours timeline.
To resolve Chargeback issues:
- Check your email every hour of every week day(most claims will come during weekdays only)
- Ask your account personnel responsible for POS transactions to fetch out the ticket in dispute. Where there is no ticket (this happens often), ask for the EoD printout from your POS device
- Reconfirm that the transaction value actually dropped into your account by checking your Daily POS Viewer Report
- Take picture of the POS Ticket, attach the ticket as evidence to your response email and send to your bank. Always use the “Reply to All” Option in responding to chargeback emails. This will ensure all parties earlier copied in the transaction email see your response
- Take note of this transaction(s) and look out for them when carrying out your month end bank account reconciliation. This will ensure you are not wrongly charged after you must have responded to the transaction within the specified time frame.
Having Issues with reconciling your POS transactions or managing or strengthening key aspects of your existing business? Come talk to us! Send us an email here firstname.lastname@example.org or call us on +234 80 561 78895 or +234 81 8170 1100. Also follow us on Facebook @SteepleGlobalServices or our Twitter handle @steepleglobal or Instagram@Steepleglobalservices and let’s discuss ideas and help you begin your journey towards financial freedom!
Steeple Global Services(www.steepleglobal.com.ng ) is a business consulting firm based in Uyo, Akwa Ibom State, Nigeria. We help to bring your business idea into reality, set up your new business for you and/or help to turn around your ailing or struggling business(s) into profit making ventures. We help businesses grow!!