What Are Credit Card Chargebacks and How Do They Work?

If you’ve ever had a credit card chargeback, you know they can be confusing and frustrating. But what exactly are they? And how do they work? We’ll explain everything you need to know about credit card chargebacks.

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What is a chargeback?

A chargeback is a request for a refund from a customer to their credit card provider. This can happen for a number of reasons, but most often it is because the customer is not happy with the product or service they received. The chargeback process can be confusing, so let’s break it down.

What are the different types of chargebacks?

There are four main types of chargebacks, each with their own specific reason code.

1. Fraudulent charges: This type of chargeback is filed when a cardholder believes that a transaction on their account is fraudulent. This could be because the cardholder didn’t make the purchase, the purchase was made without the cardholder’s authorization, or the cardholder was misled about what they were purchasing.

2. Authorization issues: This type of chargeback is filed when a cardholder believes that a merchant did not obtain proper authorization for a transaction. This could be because the cardholder’s account was used without their permission, or because the transaction was made without the proper documentation (e.g., a signed sales receipt).

3. Processing errors: This type of chargeback is filed when a cardholder believes that a merchant has incorrectly processed a transaction. This could be because the wrong amount was charged, the wrong currency was used, or because duplicate charges were made.

4. Product/service issues: This type of chargeback is filed when a cardholder is dissatisfied with a product or service purchased from a merchant. This could be because the product was never received, the product was not as described, or the product was defective.

How do chargebacks work?

Chargebacks happen when a cardholder disputes a charge with their credit card issuer. The card issuer then initiating a reversal of the transaction.Chargebacks can happen for a variety of reasons, but most often it’s because the cardholder doesn’t recognize the charge, they believe they were misled about the purchase, or they think the quality of the product or service was poor.

There are two types of chargebacks: friendly fraud and true fraud. Friendly fraud happens when a cardholder disputes a charge but there was no fraud involved. True fraud happens when someone uses a stolen credit card or account information to make a purchase without the cardholder’s knowledge.

Chargebacks are not always fraudulent. If you have a valid dispute with a merchant, you have the right to file a chargeback. But if you do file a chargeback falsely, it’s considered fraud and can lead to serious consequences like being banned from using your credit card or being added to a blacklist that makes it difficult to get approved for future credit cards.

How to avoid chargebacks

Use fraud prevention tools

There are a few things you can do to help prevent chargebacks from occurring in the first place. First, make sure you’re using some sort of fraud prevention tool, like AVS or CVV2 verification. These tools help to ensure that the person making the purchase is actually the cardholder.

Another thing you can do is keep an eye out for red flags that might indicate fraud. Some red flags to watch out for include:

-An unusually large order
-An order from a new customer with a high value
-An order from a customer with a mismatched billing and shipping address
-An order from a customer using a free email account (like Gmail or Yahoo)
-If you see any of these red flags, you may want to reach out to the customer directly to confirm their identity before shipping the order. This can help to prevent chargebacks from occurring.

Monitor your account activity

You can avoid chargebacks by monitoring your account activity and being proactive about any unusual or suspicious activity. You should also make sure that you have clear and concise terms and conditions for your customers. If a customer does dispute a charge, be responsive and try to resolve the issue quickly.

Keep your customer information up to date

Chargebacks happen when a customer contacts their credit card issuer and disputes a charge on their statement. The card issuer then initiates an investigation to determine if the charge should be reversed. If the investigation determines that the charge was indeed unauthorized, then the card issuer will reverse the charge and refund the customer.

There are a few things you can do to reduce your risk of chargebacks:

1. Keep your customer information up to date.
2. Use AVS (address verification system) and CVV (card verification value) security features when processing payments.
3. Make sure your refund and return policies are clearly stated on your website and in your terms and conditions.
4. Respond quickly to any customer inquiries or complaints.
5. Keep detailed records of all transactions, including customer contact information, transaction amounts, and dates/times.

What to do if you receive a chargeback

A chargeback is a transaction that is disputed by a cardholder. Chargebacks can be initiated for a variety of reasons, including fraud, unauthorized transactions, or simply because the cardholder is dissatisfied with the purchase. If you receive a chargeback, you will need to take some steps to resolve it.

Respond to the chargeback

If you receive a chargeback, the first thing you should do is respond to it. This can be done by providing documentation that proves that the charge was valid and authorized by the cardholder. You will need to provide copies of any relevant documentation, such as the sales receipt, shipping label, or email correspondence with the customer. Once you have gathered all of the necessary documentation, you will need to submit it to your acquirer or processor.

Your acquirer or processor will then review the documentation and determine whether or not the chargeback is valid. If they determine that the chargeback is valid, they will reverse the transaction and you will be responsible for paying back the amount of the purchase, plus any associated fees. If they determine that the chargeback is invalid, they will notify the card issuer and the charge will remain on the cardholder’s account.

Refund the customer

If a customer files a chargeback, the first thing you should do is refund their money. This doesn’t mean that you have to give up on the case, but it will help to smooth things over with the customer while you work on getting the chargeback reversed.

The second thing you should do is gather as much evidence as you can to support your case. This may include digital copies of receipts, invoices, shipping labels, emails, or anything else that can prove that the transaction was legitimate. The more evidence you have, the better your chances of winning the chargeback dispute.

Once you have all of your evidence gathered, you will need to submit it to your merchant account provider or the credit card issuer. They will then review your case and make a decision. If they rule in your favor, the chargeback will be reversed and the customer will be charged again for the transaction. If they rule against you, the chargeback will stand and you will lose the money from the transaction.

Charge the customer’s card again

If you receive a chargeback, you should immediately charge the customer’s card again. This is because the chargeback is essentially a credit that the card issuer has issued to the customer, and you as the merchant are still owed the money.

If you don’t charge the customer’s card again, you will be out the amount of the purchase, plus any fees associated with the chargeback.

It’s important to note that you should only charge the customer’s card again if you are confident that you will win the chargeback. If you lose the chargeback, you will not only be out the amount of the purchase, but you will also be responsible for paying any fees associated with the chargeback.

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