A chargeback is when there is a credit reversal from a credit card payment. This problem usually happens when a cardholder questions the authenticity of a billed transaction and asks the bank to reverse it. The bank can then withhold the funds and decide the next steps to refund the transaction if they decide the fraud concern is genuine.
The purpose of a chargeback is to protect customers from fraudulent transactions or identity thefts, which happen quite often. But chargeback processes take a long time and can be complicated.
FAQ – chargebacks
Payment disputes and chargebacks happen all the time, but they can harm a business’s bottom line. Here are a few common questions on chargebacks.
Since when has chargeback become available?
Chargeback was introduced to the US in 1974 as part of the Fair Credit Billing Act, which acted as a safety mechanism for consumers. Before that, credit cards did not gain widespread acceptance, as consumers were not confident enough.
How are they different than a refund?
A chargeback refers to a customer returning their goods or services and requesting their money back after flagging the transaction as potentially fraudulent, or there is an issue with the transaction. The customer most likely has not made the purchase, and there was no desire for it to begin with. In this case, the transaction can result from identity or card theft, and the bank has the responsibility to investigate and make the decision.
On the other hand, a refund is when a customer no longer desires the product or service they purchased and returns the goods or cancels the service and retrieves the payment, and the merchant makes the decision. This can be due to bad quality or the merchant’s specific policies that welcome goods return. Brands like Zara or Gap are well-known for their generous refund policies.
Why and when do these happen?
- Fraudulent transactions
If a customer notices an unknown purchase from a merchant they have never visited or heard of, then the card details may be leaked. In this case, they can file one to request to nullify the purchase.
- Failed refund
If a customer returns an item for a refund but never received the money or the product back, they can file a chargeback.
- Purchasing issues
If a customer pays for a good or service but never received anything after a purchase, it sets reasonable grounds for a chargeback.
- Unrecognizable business name
If the business’s actual name and the name printed on the receipt do not correspond, the customer may suspect fraud and request a chargeback.
- Unable to cancel a subscription
If a customer cannot cancel a subscription service and wants to end it urgently, they may file for a chargeback.
What is the chargeback process like for the customer?
If a customer files a chargeback out of fraud concerns, they will first directly contact the bank and quote the transaction in question. Then, the bank will acknowledge receipt of the case and conduct investigations. If the bank finds the fraudulent claim invalid, it will act on the merchant’s behalf, and the transaction stands. If the bank finds the claim valid or the merchant cannot justify its case, it will take the transaction from the merchant to the customer and hold the merchant liable to a fine.
In non-fraudulent cases, the customer may try to contact the merchant to resolve the issue. It is always best for the merchant to resolve the dispute and avoid a chargeback claim.
Do they have the risk for fraud?
Yes. Customers can abuse the chargeback process by deliberating on filing one after a legitimate purchase. If that occurs, the right payment processing partner like Payline will support the rebuttal and defrauding process.
What effect does it have on my business?
If the merchant cannot work toward a solution, then there can be a chargeback request. As a business owner, seeing the reasons why the customer files the case is crucial. If a customer is dissatisfied with the goods or services or has mistakenly made a purchase, they can negotiate a refund through traditional means and avoid chargebacks. But if a customer makes a purchase but files for a chargeback without first seeking a refund, it is essentially shoplifting.
Understanding the claim’s reasons is essential because the chargeback claim is ruled valid, the customer can keep the product and receive a refund. The bank may also hand the merchant a non-refundable fee whenever there is a chargeback or freeze the merchant’s account. Once a merchant receives a chargeback claim, it stays on their record even if the claim is invalid.
How to make your business ready for chargebacks
The best way to be prepared for chargebacks is by finding the right payment processor. No matter whether you run an online business or a brick-and-mortar store, keeping your payments and sensitive information secure with a trusty payment partner like Payline can help you minimize chargebacks.
Also, choosing the right payment processor can help you prevent fraud, and a reliable processor can help you monitor and catch fraud early, so you can prevent chargebacks and have peace of mind. Payline is here to help you through the challenges from chargebacks, and our dedicated customer support team is always ready to assist.
But besides finding the right payment processor, remember to devise a reliable and transparent refund policy, and have good communications with your customers. Sometimes chargebacks are only due to small disputes and are preventable.