Chargebacks 101 – Everything You Need to Know (Part 1 of 3)

ANY kind of dispute with a customer is something you want to avoid, and this is especially true when it comes to chargebacks. The following information is designed to help you better understand chargebacks and provides some steps you can take to prevent them from happening.

Editor’s Note: In order to provide more detail on this topic, the information will be provided in a series of three posts.

What is a Chargeback?

A chargeback is a transaction that has been disputed by the cardholder or card issuer and returned to us, your card processor. A chargeback is also known as a ‘dispute’.

This also includes violations incurred by a merchant against the card processing procedure leaving the cardholder/Issuer in a financial loss as a direct result of the violation. This could include, but not limited to, fraudulent credits processed, mismatching details on authorization and clearing records, and authorization approval received after a declined response.

Why Does a Chargeback Happen?

A chargeback is a transaction that has been disputed by the cardholder or card issuer, and returned to us, your card processor. A chargeback is also known as a ‘dispute’.

There are several predominant reasons a consumer or its issuing bank initiates a chargeback. These include, but are not limited to, the following scenarios:

  • Clerical errors — Where the cardholder claims an incorrect amount was billed to their account, or they were double-billed for a single purchase, or disputes where cardholders claim they paid for a transaction using one form of payment and were subsequently debited for the same transaction using another form of payment (cash, other credit or debit card, check, etc.)

  • Fraudulent disputes — This occurs when a customer is charged for a transaction, which they claim they did not authorize nor participate in. This may take place either on a card present (face-to-face sale) or a card-absent environment (Mail Order/Telephone Order, E-commerce, Recurring charges, No Show).

  • Customer dissatisfaction — This includes disputes due to delays/non-receipt of purchased goods/services, quality related concerns, and/or defective or not as described merchandise/services. Canceled/returned orders for which the cardholder failed to receive a refund is also another cause of a dispute.

  • The consumer doesn’t recognize the name of the business — This would most likely happen if the name on the customer’s statement doesn’t match the business name from which they purchased an item or paid for a service.

  • Authorization-related disputes — These disputes are initiated by the Issuing bank if the merchant fails to capture proper, full and valid authorization following the correct authorization procedure before settling a sale.

  • Late settlement of charges — This, on the other hand, includes reprocessed transactions that were settled past the required timeframes by Card Schemes.

COMING NEXT: A Look at the Chargeback Process and the Associated Fees