How does Gumroad handle credit card chargebacks?
CHARGEBACK -charge-back / Noun -A great scourge inflicted by credit-processing deities upon all salesfolk and creators everywhere, feared by businesses great and small alike (but mostly small).
What's a chargeback?
No, it's not a particularly aggressive player on the football field, but if you get hit by one, it can still hurt.
A chargeback, or charge reversal (or charge dispute - it's a beast with many names) happens when someone asks their credit card provider to cancel a charge on their credit card statement.
To be very clear: When your customer issues a chargeback, they are not asking us to give them their money back. We are being informed by the customer's card provider that the chargeback has taken place.
Furthermore: No payment processing website on Earth can prevent chargebacks from taking place. Chargebacks are a necessary evil when it comes to processing online payments. Many Gumroad creators think that we are unique in "allowing" chargebacks. That is not the case. Any website that processes credit cards, debit cards, and Paypal will be subject to disputes/chargebacks from customers.
Chargebacks can be made for a variety of reasons - typically for fraud. If one of your customers disputes or cancels a purchase they've made of one of your products, you as a seller are responsible only for refunding the amount of the purchase. Gumroad pays the associated fees and takes the hit on our credit line.
Think of a chargeback as an "unauthorized refund" - where a customer forcibly takes their money back from you.
Why do they happen?
There are a few reasons why chargebacks are issued:
1) A purchase was made of one of your products using a stolen credit card, and the credit card provider is now cancelling that charge
2) A customer does not recognize the charge on their credit card statement and, for lack of a better word, "freaks out" (see below for more information)
3) A customer believes they have not received the product they paid for and rather than talking with you about this, simply cancels the charge
When Chargebacks Strike
We fight every chargeback. That does not mean that we put on a suit and tie, comb our hair, and head to Chargeback Court to appeal to Judge Chargeback's good nature. It means that we automatically provide proof to the customer's card provider (or PayPal) that the charge was legitimate and that, to the best of our knowledge, the customer did intend to buy this product.
We also email your customer asking them to cancel the dispute. In our email, we tell them what they bought, and what email address was used on the purchase.
It is very helpful to us if you yourself also email them and ask them to cancel the dispute, or at least ask them (nicely) why they canceled the payment.
This is, unfortunately, all we can legally do. Chargeback dispute policies at banks and PayPal only allow us to state our case, then back away.
The chargeback will appear to you as a full refund of the sale. Gumroad pays all necessary chargeback fees, rather than forcing them onto you, and we fight to get your money back for you. We will notify you of the chargeback and provide you with the email address of the customer in question. When you export customer information, chargebacks show up in the "Disputed" column.
As a means of preventing further chargebacks, which hurt our credit rating, we also block that customer from purchasing via Gumroad again.
There is no guarantee that we will win our dispute of the chargeback, but if we do we will notify you immediately.
To make things easier, here is...
The timeline of a chargeback
1) A customer issues a chargeback, for whatever reason. No, before you ask, we can' not prevent this from happening. In the United States of America, where Gumroad is based, we are required to honor chargebacks no matter how "unfair" they might seem.
2) We begin the dispute process. We provide the customer's credit card provider with proof that they bought the product and received a download link. We show that the purchase was not fraudulent.
We also email your customer and explain to them that they issued a chargeback against us and ask them to cancel this. *You* should also be emailing them and asking them to cancel the chargeback. It helps. Really.
3) We wait for the credit card provider to read through our dispute and decide whether or not we get the money back
4) We wait
5) We continue to wait. We can not check in on the process to see how the dispute is faring. We can't. Sorry. We don't have any insight into this. It sucks, we know.
6) We wait. This can take months, sometimes.
7) IF we win the dispute, the card processor will send that money back to us with a letter saying we won the dispute.
7A) If we DO NOT WIN the dispute, we will *literally never know*. The dispute just kind of sits in limbo and, again, we can't look into it to find out what's up.
8) IF YOU WIN the dispute, we put that money back into your Gumroad account. We will send you an automated email notifying you that you won the dispute.
If your account has had too many chargebacks issued against it, our risk team may get involved, as per our Terms & Conditions. Chargebacks hurt Gumroad's credit rating, and the better our credit rating, the lower we can keep our fees for creators, or offer cool things like native currency payouts.
Let's say you have $1,000 in sales and you incur $100 in chargebacks. You now have a 10% chargeback-to-sales volume rate, meaning 10% of all of your sales have resulted in chargebacks. As you know, we also swallow the resulting penalties that are attached to chargebacks. Theoretically, if we were to continue processing your sales, we would continue to accrue fees and chargebacks on your behalf.
From the viewpoint of our partners, this is unsustainable and your account will have to be suspended. We do make exceptions if your account is relatively new.
What You Can Do
The first thing you should do is send Gumroad any and all correspondence you have had with the customer who has issued this chargeback. BCC Gumroad on this correspondence. This may increase the chances of us winning the dispute for you.
If you have not corresponded with the customer yet, we recommend that you email them immediately and ask them (nicely!) why they disputed the charge. Oftentimes, customers won't recognize a purchase on their credit card statement, and are more than happy to reverse the chargeback. Again, please send us all correspondence you have with them as this will help our case in the chargeback dispute.
Now, this is where things get a little complicated...
Reverse Chargebacks vs. Repurchasing
When we win a dispute, you receive an email from us, and a credit on your balance page and next payout.
That said, reversing or winning a dispute can take longer than anyone would expect.
Credit card networks were built over the last 60 years. They were originally designed to go in one direction. Then, the concept of chargebacks was added. Chargebacks are often manually reviewed and slower to process than your average daily payment. Chargeback reversals (or reversal-reversals) were hacked in on top of that. It's kind of a mess.
Long story short, reversing a chargeback takes a long time, and it doesn't always work well. It's an unfortunate side effect of payments and something we like to keep our sellers from ever having to deal with.
To see your funds return to your account, it is often easier to ask your customer to repurchase the product again. They will have to:
- Use a different browser, or Incognito mode to make the purchase
- Use a different email address to make the purchase
Q: Can Gumroad prevent chargebacks from happening?
A: No. Not at all. There is no payment processing entity in the universe we presently inhabit that can stop a customer from issuing a chargeback. If someone at another payments website smugly informs you that their system prevents chargebacks, please verify that their pants are not currently burning due to their patent dishonesty.
Q: Why wouldn't a customer recognize a charge on their credit card?
A: At the moment, we send 14 characters to customers' credit card providers for processing. The first six characters are "GUM.CO" and the remaining eight are your Full Name as listed in the Settings menu. If your full name is not reflected in the title of your products or your branding, you may run into issues.
For example, if you sell films under the heading Breadcrumb Films but your full name on Gumroad is Mildred Peppercorn - your customers will be understandably alarmed when they see "GUM.CO MILDRED P" on their credit card bill. Rather, go with the name of your brand as your full name.
Q: I contacted my customer but they're not responding! This chargeback is therefore false, and I demand that it be removed.
A: Unfortunately, we can't simply cancel a chargeback. We have to follow the same procedures we always do, even on legitimate chargebacks. It sucks, we know!
Q: I had a customer issue a chargeback 3 months ago - what happened?
A: We don't know, sorry! We are not allowed to inquire with banks or PayPal as to the status of a chargeback's dispute. If we win the chargeback, we will send you an automatic notification. If we don't win it, we're never informed otherwise.
Q: But this means that the person got the product for free!
A: Yes, unfortunately it can mean this. But again, neither we nor any other marketplace website can preemptively stop chargebacks from happening. Sometimes customers and other humans act badly - all we can do is fight the dispute with data, not arguments about the ethics of chargebacks.