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Protect Yourself From Chargebacks - Podcast Transcript

Protect Yourself From Chargebacks - Podcast Transcript

MPI's Chief Revenue Officer, Katie McMillan, was a guest on First United's "What Matters Most Podcast" and discussed protecting yourself from chargebacks. Take a listen by following the link or read the transcript below.



Eric: Hello, and welcome to “What Matters Most,” a podcast all about finances, community, savings, and security for you, your family, and your business. This podcast is brought to you by the helpful folks at My Bank First United Bank & Trust. I’m your host, Eric Nutter, and in today’s episode, what matters most is protecting against chargebacks. And for this helpful discussion, I am thankful to be joined once again today by Katie McMillan, director of sales at MPI, the merchant services partner with First United. Katie, how are you?


Katie: I’m doing well and happy to be here. How are you?


Eric: Phenomenal. Having a ball here and enjoying all the podcasting, enjoying all the episodes with my favorite podcast guest, Katie McMillan.


Katie: When does my trophy arrive?


Eric: You know, I’ve been working on it. It’s gonna take, they’ve said, four to six weeks, so don’t hold your breath. They’ve said that for a while now.


Katie: So it’s the personalization that makes it take so long?


Eric: Yeah, yeah. I debated long and hard as to what it was. I think ceramic unicorn was the way to go. And so…


Katie: Approved.


Eric: …it takes a long time to get those made, you know? So, Katie, we’re here today to talk about protecting against chargebacks. Now, why don’t we start in the most obvious place? What the heck is a chargeback?


Katie: Good question.


Eric: You know, I’m good at these.


Katie: Yeah. Well, it’s a valid question because some people don’t know what they are. And chargeback is the dreaded C-word, in my opinion, in merchant services, right? And chargebacks are when a cardholder… And we covered what a cardholder is in our last podcast. But just to recap for those who might’ve missed it, a cardholder is the person that’s using their debit or credit card at a business to purchase a product or service.


Eric: Yeah. And might I add, if you missed the episode, shame on you. Go back, subscribe, and listen.


Katie: Yeah, you really just need to pause… Yeah. Go back to that one and then start this one over.


Eric: Otherwise, spoiler alert. I mean… Okay, so a cardholder goes to a business and purchases something.


Katie: Right.


Eric: And then what?


Katie: And so, there are times where chargebacks are when somebody purchases something and maybe they didn’t receive the product or service at all, or to the expectation in which it was sold. There are times where chargebacks occur where you’ve ordered something online and the product never showed up. You’ve had a custom sofa that you paid for and you were supposed to get it in two months and it’s on month eight and you still don’t have an estimate of when you’re going to receive it. You know, chargebacks are when cardholders basically say, “I want my money back because I didn’t get this product or service at all, or as expected when it was sold to me.”


Eric: And they do this through the card company itself, not with the vendor.


Katie: Right. They will go through the issuing bank. And the issuing bank is the bank that issued that card to them. So, it could be their local bank. It could be Discover. You know, they might’ve gone online and applied for a Discover card. The majority of the time chargebacks are initiated by the cardholder itself. There will be some times that the bank might file a chargeback because they’ve identified that maybe that card has been compromised and some subsequent charges occurred that could result in chargeback because that cardholder wasn’t aware of that activity.

And they’re different than disputes. And it’s important to talk about disputes in addition to chargebacks, because a dispute is kind of the first inkling that something might be heading towards a chargeback. And a dispute isn’t asking for the money back. The dispute is something from the cardholder’s bank that comes to the merchant and is questioning the charge. What was this charge for? A chargeback is when it’s turned into a full-on taking the money back. And there needs to be a decision that the cardholder was aware that the purchase happened, that they received the product or service as it was intended, and it’s on the merchant, which is the business, to prove all of that information. So, any small business or, you know, any size business owners that are listening to this, if you’ve gotten a chargeback notice, you have a certain amount of time to respond to it, and you have to offer proof that that transaction should be found in your favor and you should receive the money back. And oftentimes…


Eric: So, when that happens, the money’s gone and you have to go prove that it shouldn’t be gone?


Katie: Yeah. So, what will typically happen is the money for that transaction will be withdrawn from the merchant’s bank account. And it’s then I’d say usually within at least 30 days, somewhere between 30 days, 45 maybe, that merchant has to respond in an official capacity. And your chargeback notice tells you everything you need to do to prove that the transaction’s good.

Now, some things to note are if you have a customer who’s not happy that they either didn’t receive the product or service, or they got it and they said it’s not as it was intended to be sold, and you feel that that cardholder deserves a refund, it’s important to clearly communicate that to the customer that you’re refunding the money. The money should be in their account within a certain amount of time. And that helps this not turn into a chargeback.

And the benefit to that is that most providers will charge you a fee for each chargeback that’s filed. So, you have the issue of having to spend extra money if transactions turn into chargebacks. But you don’t want to have your transactions turning into chargebacks frequently because there’s actually a threshold for how many chargebacks you can have. So, if you’re not running your business well… And I say that and I know that’s a provocative statement. If you’re not running your business well and, you know, your sales start turning into chargebacks because you’re not refunding money, or you’re not delivering on products or services, or you’re not representing those products or services for what they are, then, you know, your account can be shut down and you can actually be placed on a list that makes it so you can’t process transactions for 10 years.


Eric: Holy cow. Ten years?


Katie: Mm-hmm. Yep.


Eric: Okay. But the protection for the business, the merchant, at that time is that… You said disputes have to happen first. So, if you’re getting a bunch of disputes, those are early warning signs that you’re going to start having chargebacks, so be careful. Because a person can’t directly kick-off a chargeback. Is that accurate? Like, they have to first start with a dispute.


Katie: They don’t have to start with a dispute.


Erick: Oh, okay.


Katie: A dispute, it’s kinda like the square and the rectangle thing, right? A dispute is the first step to a chargeback sometimes. Other times, it can go straight to a chargeback.


Eric: Oh, wow.


Katie: And what’s very interesting is, as a business, you need to protect yourself by having, you know, best practices and clear communication. But another way that you can get chargebacks is because there’s fraudulent activity from cardholders. Cardholders, the people out there spending money, have become more savvy about chargebacks. And there are people that will habitually purchase things and either say that they’ve never received it, or they’ll purposely purchase something and then charge it back because they know that they’re gonna get the money and the proof of burden is on the merchant, and it’s very hard sometimes for merchants to prove that.

And some of the best practices that you can put in place, especially for businesses that ship products out, if you have an order that comes in and the cardholder information is for one address and you’re shipping it to a different address, that could be questionable, right? Because if you have a cardholder that’s in Wisconsin and you’re shipping it to Southern California, you know, the…


Eric: There might be fraud at that point.


Katie: It could be fraud, right? Now, you could have a situation where there’s a mom that’s sending something to a starving college student, and it’s just easier to ship it direct. But that’s a red flag. You know, if you are really kind of a small business in a very rural area in Maryland, and all of a sudden you have this too-good-to-be-true large transaction from someone in the UK, is that typical of your business to be… Why would someone in the UK find your business unless you’re some real specialty item collector of some sort, you know? Being smart about who’s purchasing from you can help protect you against chargebacks as well.


Eric: Yeah. Now, I mean, you mentioned online, but I mean, is the threat still there in physical stores as well? Like, when you’re buying them in person?


Katie: Oh, absolutely. Absolutely. You know, you wanna protect yourself for in-person payments. You know, I think that anytime you have extremely large transactions, larger than what you’re typically doing, you know, ask questions about it. Make sure that you have a refund policy in place so that people understand when they’re purchasing it, whatever it is that you’re selling, that they understand if they want to have a refund, these are the steps that they need to take. Because if you can drive a cardholder to interact with you in a positive way, and you refund a portion or all of those funds, it’s ultimately going to save you money instead of having a process that’s either not there or not positive and the cardholder’s like, “I’ll just get my bank to take care of this.” And then they get their money back and go along their own way.

Probably one of the biggest, biggest things that you can do if you haven’t already done it and you take in-person payments, is you need to get a machine that takes EMV or NFC transactions because that is proving that that cardholder is physically there and they’re aware that the transaction is happening. That’s one of the biggest struggles that I think businesses encounter with these chargebacks, is that the person filing the chargeback says, “Well, I wasn’t there.”


Eric: And if you’ve implemented these fail-safes like EMV, you can clearly dispute that because, obviously, they had to be here?


Katie: Absolutely. You know, keep your receipts. You get a report at the end of the day that tells you all the transactions that happened, and that’s great. But if you have a machine that’s physically printing receipts, keep your receipts because you might have to show that that person was there and this receipt came out, especially if it was a signature. Now there’s no guarantee. We can never guarantee that that’s gonna win you the chargeback, right? But it’s proof that you have that that person was absolutely there.

And it’s important that you have… I can’t stress this enough, Eric. You need to make sure that the people doing business with you understand the product and service as they’re buying it, and if they need to refund, put your refund policy up behind you, put your refund policy up on your website, and encourage positive communication about if somebody’s unhappy with something.

You know, locked doors keep honest people out. That’s an expression that I heard growing up a lot. There’s sometimes not a lot you can do for people that are solely focused on doing fraudulent transactions, right? But if you can put everything in place to try to safeguard yourself to minimize that, you know, you’re really doing yourself a service by protecting your pocket. Because you don’t wanna end up on the list where you can’t process, where it looks like you’re not having good practices around accepting payments. You know, you don’t want to get charged a fee every time something turns into a chargeback.


Eric: Right. So, vigilance and communication, sounds like, are two key practices. Just be aware of what’s going on, question things if they look suspicious, and then be very communicative to your clients.


Katie: Absolutely. And, you know, there are… I could tell you I’ve dealt with so many different types of merchants over the last 15 years selling a variety of products, but I’ll tell you that there are some of those merchants that sell specialty things that they aren’t $5 and $10, right? It’s $15 to $5,000 for a specific item. And, you know, I would encourage them to, you know, ask for somebody’s ID. Do you know the last time I was asked for my ID for a credit card transaction? It’s been years. It’s been years. And…


Eric: You know, can I tell you something? That just reminded me of something. I remember seeing this one time, and I’ve not done this, but I saw somebody put… You know how on the back of your card you’re supposed to sign it?


Katie: Right.


Eric: And I’ve seen people write in Sharpie where you’re supposed to sign, “Ask for my ID.” And I found that very fascinating. I was like, “That’s an interesting idea.” I don’t know if that you’re supposed to do that, but I thought that was really interesting because then if somebody did steal your card and you’ve got your name on it, and you look at the back of it, if the person takes the time to look at the back of the card and they see that, “Ask for ID,” and if it doesn’t match, I mean, that gives you some protection as a cardholder.


Katie: It does. And if there’s any merchant services people out there, don’t kill me, I’m going old school today, okay? All right? Talking about NFC and checking people’s driver’s licenses, don’t judge me, but you know what? I found that when people were checking my card, they were just seeing that a signature existed. They weren’t checking to see if it matched how I signed it, which was probably good for me because I’m one of those people where it’s like my squiggly line seems to change every time, right?


Eric: Yeah. Same.


Katie: But, you know, do we wanna have our employees checking a driver’s license for small items? Probably not. You know what I mean? That might not work with a quick service environment, but, you know, if you have large items that you’re selling for large amounts of money and you feel like… You know, I would recommend to merchants all the time if you’re selling something for $15,000, you know, ask for the driver’s license to go with the credit card. Not just so that you can verify the information, but to put it out there to that person using that card, “I’m checking to make sure that you are legit.” You know?


Eric: Yeah. It’s protecting yourself, but it’s also showing a sign of faith to the person on the other end, the person handing the card to you, that, “I’m gonna check for your sake too. If someone stole your card and was trying to buy this thing from me, trust that I’m going to be looking at it.”


Katie: And listen, if we inconvenience somebody for asking them to hand something over that should be readily available anyway, there’s not a lot we can do to control that. But at least you know that you’ve protected yourself and the cardholder, whether that’s the person in front of you or not.


Eric: Right. Exactly. Yeah. Good point. Well, Katie, any final thoughts, any other tips or tricks for businesses that accept credit cards, whether it be online or in person, to help protect themselves against potential chargebacks or disputes?


Katie: You know, I think that the last and final thought I could put out there, and I can’t reiterate it enough, is if it’s too good to be true, question it. If it’s that big sale you’ve been waiting for, you know, question it a little bit. Find out more about the cardholder. If you ask questions to understand your side of the transaction, right? Where are you sending these goods? Where’s this person located? You know, it’s worth it for you to potentially lose that big sale instead of landing that big sale and it turning into a chargeback, and then ultimately, you’re out the extra money for the chargeback fee anyway. Just, you know, question things. Use that gut instinct as a business owner. Is this too good to be true?


Eric: Yeah. That’s good advice regardless in life. It’s just a good life advice thing.


Katie: Well, and we really try to outfit, you know, our relationship managers for our company. You know, we try to educate them on all of this so that… When we talk to our existing and our new merchants, you know, we really try to take their business and how they process transactions and try to use that real-time information as part of the service and consult them and go, “Hey, this might be a chargeback issue. Let me help you put a best practice in place,” or, “How do you handle refunds now?”

When we get statements from people that we’re reviewing, one of the first things that we look for is, you know, did they have any chargebacks? Because that’s not gonna be fun to underwrite. But it’s also an opportunity for us to help that business, to say, “Hey, you know, we can save you money, but you’re also losing money on these chargebacks. Let’s help put something in here and change how you’re doing to protect your pocket ultimately.”


Eric: Absolutely. That’s great. Katie McMillan, director of sales at MPI, the merchant services provider and partner with First United. Katie, thank you again so much for joining me today and providing such helpful insights.

Katie: It’s my pleasure. Thank you so much.


Eric: If any of our listeners have a question or would like to learn more, the best way you can get the support that you need is by visiting, or stop in any of our locations, or call our call center. They can certainly point you in the right direction or get you the support you need, whether that be with accounts or with merchant services, services like Katie has talked about here.

Well, that brings us to the end of our show. You can always find more episodes by visiting, or find us on your favorite podcast app. You can also leave feedback, ask questions, or request a topic for us to discuss by sending an email to


Thanks again for listening. We’ll be back next time with more helpful content, but until then, we wish you the best in focusing on what matters most to you.

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