What is a chargeback?
A chargeback refers to the reversal of a card payment initiated by the cardholder through their bank. It occurs when a customer disputes a transaction due to suspected fraud, errors, or dissatisfaction with goods or services. The issuing bank investigates the claim and, if valid, returns the funds to the cardholder.
Why do chargebacks happen?
Chargebacks occur for several reasons. Fraud represents a major cause, especially in card not present transactions. Customers also raise disputes when they do not recognise a transaction, do not receive goods, or believe they were charged incorrectly. Processing errors such as duplicate charges also lead to chargebacks.
How does the chargeback process work?
The cardholder contacts their issuing bank and raises a dispute. The issuing bank reviews the claim and sends a chargeback request through the card network to the acquiring bank. The merchant then has the opportunity to provide evidence to challenge the claim. If the evidence fails, the funds return to the cardholder.
What are the costs of chargebacks for businesses?
Chargebacks create direct and indirect costs. Businesses lose the transaction value and pay additional chargeback fees. High chargeback rates also lead to penalties from card networks and risk account termination. Operational costs increase due to dispute handling and investigation.
How can businesses reduce chargebacks?
Businesses reduce chargebacks through clear communication, accurate billing descriptors, and strong fraud prevention tools. Providing good customer service and easy refund processes also reduces disputes before they escalate.