Chargeback

What is a chargeback?

Chargebacks are processes that begin when a cardholder disagrees with a charge made to their account and requests their issuing bank to refund that amount. The bank then initiates the dispute and processes the claim with the merchant involved.

The customer can file a formal dispute with their financial institution, which then takes responsibility for challenging the transaction. This usually leads to an immediate refund, so merchants must be prepared to deal with these situations.

How does a chargeback occur?

The most common reasons behind chargebacks include cybercrime or fraud, where the charge is processed without the cardholder’s consent, issues with the purchased product or service such as defects or poor condition, shipping problems, or simply a duplicated transaction error.

What’s the difference between a chargeback and a refund?

It’s important to distinguish between a chargeback and a refund, as both terms are frequently used in the context of online commerce:

In a chargeback, the customer contacts their bank to request a review of the transaction. The bank acts as the intermediary and manages the entire process.
In a refund, the customer contacts the merchant directly, who voluntarily processes the return of the money.

Why are chargebacks important for merchants?

Chargebacks can seriously impact a business’s profitability and reputation. A high number of chargebacks may lead to direct financial losses due to refunds and associated fees, penalties from financial institutions, damage to brand image, and loss of customer trust.