Things You Should Know About Chargebacks

By Author: Patrick Daniel
Total Articles: 33
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What is a Chargeback?
Chargeback is a dispute raised by a cardholder directly from their bank for the return of payment or reversal of a credit card transaction. It is very different from that of return of sale as this comes directly from the cardholder's bank and is processed via the Payment Gateway to the merchant.
Chargebacks were brought into the picture to protect the buyer from businesses selling subpar products or services or performing unethical activities.

Difference between a Chargeback and Refund.
Although from the customer's point of view it seems to be the same. But from a merchant's point of view, the chargeback comes with the additional fee along with the product or service cost amount. In refund, a merchant directly refunds the amount to the customer using his merchant account, whereas in chargeback the issuing bank presses the administrative charges.

3 Types of Chargebacks / Fraud

True fraud
Under this category, unauthorized transactions take place. The cardholder is completely unaware that the card is used to benefit products or services, this means theft has ...
... occurred. Here when the cardholder files a chargeback it results in discontinuation of the credit card number first and a new card with a new number is issued.
In this case, the cardholder is encouraged to approach their bank first rather than getting in touch with the merchant to resolve the issue.

Chargeback fraud
Here the cardholder is a deceitful customer having ill intent. He is trying to get away with that, which is by not paying for a product or a service that they have truly ordered or purchased. The cardholder's ill intent is the reason behind the chargeback.
Even though the business has rightfully delivered the products or catered the services as described, the consumer will file a chargeback dispute so that he/she can avail of it for free and not pay for it. Business owners have to then play defense by proving their case in the process. This in reality is daunting because the cardholder is unethically trying to take advantage of the protection policy and going against the very nature or reason behind bringing this policy into existence. The policy is supposed to provide protection but they’re abusing it.

Friendly fraud
The cardholder issues a chargeback due to an honest mistake. The cardholder issues chargeback with no malicious intent. It could be due to common, honest mistakes or errors like forgetfulness, being unclear of what they purchased, not recognizing a charge, delays in shipping, or the consumer not receiving a product along with many other scenarios, here’s a quick shortlist of why chargebacks could occur.
Not receiving the item
Received incomplete/partial item.
Damaged item or not in compliance with description
They thought they were billed the incorrect amount
Child making purchase on parents credit card without their knowledge
Forgot about the purchase or someone else was authorized to use their credit but didn't tell them.
Friendly fraud is mainly related to miscommunication or misinformation on either or both parties.

The chargeback process is made to favor the customer so you should necessarily know the process and best equip yourself before keeping your side safe and winning a dispute when you are caught in a chargeback situation. Presenting basic documents is enough and can help you win, additionally, you must gather as much information about the customer as possible at the point of purchase to prevent and protect yourself in future chargeback situations. By doing this step you are ensuring that you gather proofs if required to present.

Chargeback Process

The cardholder calls their bank
The customer calls their bank to initiate and file the chargeback and states their reason for doing so. And while filing they attach their evidence to support their claim.

Bank Review
In this step, the bank reviews the application submitted and verifies its legitimacy and depending upon the results approves or rejects the issues disputed as an invalid disputes.

Credit of amount
The cardholder bank on approval gives credit to the consumer on their credit card immediately.

Issuing chargeback to the card network
The fourth step includes formally issuing chargeback to the credit-card networks and a fee is also charged.

Receiving chargeback
The merchant account processor (acquirer) receives the chargeback and notifies the business via Payment Gateway and other dedicated communication channels. It requests the merchant to display the proof of purchase. This is the right place where a business owner can submit his records as evidence of purchase. Here’s a list of proof you can provide,
Printed receipt
Signed contract
Transaction details from merchant’s portal
Stamp verifying date and time of purchase.
Signature of cardholder

Choice of business owner
Here the business sometimes just lets go of the chargeback, the process ends but also at the same time the business owner is found at fault.
If the owner chooses to reply then will be required to provide proof of purchase to fight against the chargeback

Submission of documents
The business owner or the merchant then provides the documents displaying proof of purchase to the card-issuing bank.

Upon the result of a dispute in whose favor it is either cardholder or merchant, either party can file a chargeback if not satisfied with the results, only if you have strong supporting documents otherwise it will result in a huge penalty.