Chargeback is a procedure for debiting the amount of an authorised payment from a merchant upon the request of the issuing bank. Usually, a chargeback is initiated by customers who, for some reason, want to get their money back after the payment has been made.
When a cardholder disputes an order and files a chargeback, a review process involving the issuer, acquirer, and card network begins. If the chargeback is approved, the full amount of the disputed transaction will be returned to the customer’s debit or credit card.
An incorrect charge can happen for a variety of reasons. By and large, all chargebacks can be divided into two types:
A cardholder often initiates a chargeback if some fraudster took possession of their card data and made a purchase without notifying the real cardholder. Sometimes it also happens that the customers themselves act as fraudsters. When a cardholder finds a way to abuse company policies, they may declare that they never ordered an item or that it was never delivered.
It should be noted that chargeback is mandatory for merchants if the fact of fraud is established.
The other common situation is when a buyer receives a product that didn't meet their expectations or they misunderstand the merchant’s shipping or return policies.
Customers can also apply for a chargeback in other cases:
Typically, chargebacks are initiated by cardholders who want to get their money back for a number of reasons described above. However, the merchant can try to stop the chargeback by proving the dispute is unwarranted.
In any scenario, three parties are involved in the chargeback process:
The rules and terms of the chargeback procedure are established by card networks (Visa, Mastercard, etc.). Thus, cardholders have 120 days to file a chargeback after the transaction is made. The maximum time limit for a response from the issuer is 30 calendar days. If approved, a chargeback has to be processed within 15 days.
Both chargebacks and refunds involve returning funds to a customer, but there are essential differences between the two.
With refunds, the customer contacts the merchant directly, bypassing the bank, to resolve the issue and get their money back. This scenario is more beneficial for both parties because the buyer gets their money faster, and the seller gets their item back, avoiding high chargeback fees and maintaining their reputation in the payment processor.
With chargebacks, the cardholder doesn’t contact the merchant directly, preferring instead to deal with the bank. In this case, funds are withdrawn from the merchant’s account without warning. In addition to high chargeback fees, the merchant bears shipping costs and risks their reputation with payment intermediaries.
As such, businesses are at a greater risk of losing money from customers who opt to file a chargeback with their bank instead of contacting merchants directly to resolve the issue and receive a refund.
If you are determined to get your money back by resorting to a chargeback, here is a step-by-step instruction:
Chargebacks create losses for online businesses. The average industry cost per chargeback is expected to be $191 by 2023. It’s quite difficult for e-commerce companies to avoid chargebacks completely, but there are proven ways to minimise them significantly. Here they are: