Chargeback

What is a chargeback?

Chargebacks, or payment reversals, are processes initiated when a cardholder disputes a charge and requests the issuing bank to return the amount. The bank then processes the dispute with the merchant involved.

The customer can submit a formal complaint to their financial institution, which handles disputing the payment transaction. This usually leads to an immediate refund, so all merchants should be prepared to handle this type of issue.

How does a chargeback occur?

Chargebacks can happen for various reasons, the most common being:

• Fraud or unauthorized use: charges made without the cardholder’s consent.

• Problems with the product or service: defective item, item not as described, or item not received.

• Transaction errors: duplicate charges or incorrect amounts.

• Unrecognized charge: the customer does not recognize the charge on their bank statement.

• Customer dissatisfaction: the buyer chooses to dispute the amount directly with the bank instead of requesting a refund from the merchant.

• Uncancelled subscriptions: the customer believes they have canceled a service, but charges continue to appear on their account.

• Unrefunded returns: the user requested a refund but has not received the transaction amount.

How do chargebacks affect merchants?

• They generate direct financial losses, as the merchant loses the sale amount.

• They usually involve additional fees from the bank or payment provider.

• A high volume of chargebacks can harm financial reputation and affect relationships with acquirers.

• There are risks of penalties or restrictions on payment accounts if certain thresholds are exceeded.

• They require administrative resources to manage and dispute cases when necessary.

• They can lead to loss of customers due to lack of trust in the payment process.