What Is A Chargeback And What Does It Involve?

There are a few things in life that you want to avoid, and chargeback in the eCommerce business is one of them. These financial transactions are great problems for any business, both products or services. Chargebacks can result in a reversal of funds, losing money, and a company’s reputation. So it’s important for merchants to maintain each chargeback request.

The process may involve one of three parties: the cardholder, the card issuer or company that issued the credit/debit card to the customer, and the merchant. Keep reading to learn more about chargebacks meaning and what they involve.

What Is A Chargeback?

A chargeback definition means a type of reversal that occurs when a credit card holder asks their bank to “charge back” the merchant or return the amount of money they paid to the authorized merchant. When the customer opens a payment dispute, bank institutions usually review the transaction, and the claimed reason is valid; they provide provisional credit for the customer while the chargeback claim is resolved.

Among reasons, customers may use this payment dispute process if they believe unauthorized or fraudulent charges have been made, if the customer received a damaged or defective item, an item was never delivered, which was ordered, etc. This is a huge problem for merchants, so if you have an online business, it will be good to know the main reasons why customers’ chargebacks can be issued.

Chargeback Fraud

Chargeback fraud is a payment dispute process when a cardholder becomes a victim of true fraud, like card theft, identity theft, etc. In this case, a chargeback will be issued by the customer’s bank.

Friendly fraud chargeback is another problem merchants often face. Such issues can happen when customers buy goods or services and then decide to make a chargeback through their bank. The reasons can be different, but most of all, not legitimate to decrease different chargeback types, merchants usually use a flexible chargeback prevention platform with a layer of proprietary technology to boost efficiency. This service will help you grow your business without worrying about frequent chargebacks.

Chargeback fraud is when a customer uses the chargeback process to do malicious transactions. Merchants will usually suffer losses of thousands of dollars if this happens.

Why Customers May Decide To Use The Chargeback Process

There are many reasons a cardholder may decide to ask their bank to charge back the merchant or return the funds they gave to them. Chargebacks can be issued for one or more of the following reasons:

Unauthorized Or Fraudulent Charges

If the cardholder believes there is unauthorized usage on their credit/debit card, they may initiate a chargeback with their bank or company that issued their card. This may happen if an individual has their personal information stolen and used on another person’s behalf for unauthorized purchases, for example.

Customer Received A Damaged Or Defective Item

If the customer receives an item that is damaged or defective, they can also initiate a chargeback for this reason. This can happen if the merchant sends an item that is damaged in a package, which would damage the product without insured damage coverage, or it was lost or stolen in transit, and this was not insured by the merchant, for example.

An Item That Buyer Ordered Was Never Delivered

It can happen that a buyer orders an item from a merchant, but it is never delivered. This can occur if the product the customer ordered never existed or was not shipped to them. The order can be also lost or stolen. Customers may submit a chargeback to their bank or another company that issued the credit/debit card because they feel they should have been given their money back at this point.

Charges Were Duplicated Or An Incorrect Amount Was Charged By The Merchant

If a customer believes that the amount they charged to their credit/debit card is incorrect, they could ask their bank to charge back the merchant. This can also happen if the total of the order was charged several times.

The Bottom Line

If you have an online business, it will be essential to know how chargebacks work and what their implications are. Chargebacks are a serious problem for merchants and the industry as a whole. To stay away from chargeback fraud and friendly fraud, businesses can use different chargeback prevention platforms that are easy to integrate with a merchant’s e-commerce platform. These programs will help you to reduce chargebacks.

However, chargebacks are a common part of doing business with customers and merchants, whether you are online or in a physical store. If you accept credit/debit card payments, it’s good to know about the main reasons for chargebacks so you can take steps to avoid them.