A chargeback is a refund processed by a credit card issuer. Chargebacks are initiated by the cardholder, and their bank reverses the transaction. The merchant then pays the customer’s bank the amount of the chargeback, plus any fees associated with it.
Chargebacks were created to protect consumers from fraudulent activity. However, they can also be used to dispute legitimate transactions.
There are four main types of chargebacks: fraud, authorization, processing error, and customer dispute.
Fraud chargebacks occur when the cardholder claims they did not authorize the transaction. This can happen if the cardholder’s information was stolen and used to make a purchase, or if the cardholder believes the transaction is fraudulent.
Authorization chargebacks happen when the merchant does not have proper authorization from the cardholder’s bank to process the transaction. This can occur if the cardholder’s information was entered incorrectly, or if there are insufficient funds in the account.
Processing error chargebacks happen when there is an error in the processing of the transaction. This can occur if the wrong amount was charged, or if the wrong card was charged.
Customer dispute chargebacks happen when the cardholder disputes a legitimate transaction. This can occur if the cardholder is not satisfied with the purchase, or if they were promised something that was not delivered.
How to avoid chargebacks?
There are a few things you can do to avoid chargebacks:
-Make sure you have proper authorization from the cardholder’s bank to process the transaction.
-Do not process transactions for more than the authorized amount.
-Do not process transactions for goods or services that have not been received by the cardholder.
-Keep accurate records of all transactions.
-Respond to chargebacks in a timely manner.
What is the chargeback process?
The chargeback process begins when the cardholder contacts their bank to dispute a transaction. The bank then contacts the merchant and requests more information about the transaction.
The merchant has 10 days to respond to the bank’s request. If the merchant does not respond, or if the response is unsatisfactory, the bank will issue a chargeback.
The merchant will then have 10 days to dispute the chargeback. If the merchant does not dispute the chargeback, or if the dispute is unsuccessful, the bank will issue a credit to the cardholder for the amount of the chargeback.
The merchant will then be responsible for paying any fees associated with the chargeback, as well as the cost of the goods or services.
What are the consequences of chargebacks?
Chargebacks can have a significant impact on businesses, both financially and reputationally.
Chargebacks can cost businesses money in fees and lost merchandise. They can also damage relationships with customers and banks.
Businesses that have a high number of chargebacks may be considered high-risk by banks and processors, and may be charged higher fees, or have their accounts cancelled.
