What is a chargeback?

Written By Tom Wesolowski (Administrator)

Updated at February 18th, 2020

The chargeback is a form of customer protection, so the bank refunds disputed value to the cardholder if there’s something wrong with the order, such as using the card details without the cardholder’s authorisation.

Chargebacks happen when a customer disputes a charge on the bill, and the reasons for that can be different. Here are the most common ones: 


Item not received
Cardholders claim that the product they paid for wasn’t delivered. A similar situation is when the customer isn’t satisfied because a product or service wasn’t as described.


● Credit not processed

The customer returns the product to the merchant and requests to get their money back, but claims that the credit wasn't posted on their account. 


● Technical problems

The problem occurs, for instance, when the customer's card is accidentally charged twice for the same transaction because of some technical issues. Or, there can be a problem with the authorisation, the account could be charged even if the transaction was declined.


● Fraudulent transaction

A credit card is used without the cardholder's authorisation or fraudulent activity happened due to identity theft.


Note

According to the new Visa rules, there are new names for the Chargebacks and the Representment process. The Chargeback is called a Dispute, and the Representment process turns into a Dispute Response.


The chargeback process

There are a few parties involved in the chargeback process, and these are a cardholder(customer), issuing bank, card network (such as Visa, MasterCard or American Express), merchant, acquiring bank, payment gateway, and a merchant account.

Keep in mind that a traditional refund is when a customer contacts the merchant directly, while the chargeback is when a customer asks the bank to “remove” funds from the merchant’s account and give it back to the cardholder.

The procedure generally starts when the bank issues a code for the dispute. That chargeback is sent to the card organization, as well as the acquirer. Subsequently, the merchant’s bank withholds the funds being referred to while the client gets a refund.

Gather the evidence

You, as a merchant, need to act promptly and send relevant documents, receipts, shipping proofs, logs, and all that prove the transaction is legitimate in the chargeback representment form, which is sent to the acquirer. Then, it is sent off to the issuer, and the issuer decides who the winner is.

Once the transaction is proven to be fraudulent, the original transaction value is refunded to the cardholder. And what about the merchant? If you won’t be able to prove that the transaction is legitimate, the bank will not only take back the original value from your account, but you’ll also be charged an extra fee. And, when the customer’s complaint is proven untrue, a merchant won’t pay any refund.

What if you win, and the customer is not happy with the result?

A customer can decide to file for pre-arbitration. This results in an additional chargeback for the merchant and the loser need to pay 250 euro fee. If, still, one of the parties is not satisfied with the decision, they can file for the final stage arbitration. This comes with a 500 euro penalty to the loser.

Please note that the more chargebacks per transactions for the merchant, the higher the chargeback ratio, which means more penalties that the merchant has to pay. When a merchant account receives too many chargebacks, it can be even labeled as fraudulent. So, as you can guess, it will affect your business’s bottom line .







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