What Is A Chargeback?

August 6, 2023

A chargeback is a payment that is returned to a customer after they dispute a payment they previously made. These can occur on both debit and credit cards. A chargeback occurs after a customer makes a purchase and the charge was fully processed by both the bank and the merchant. Chargebacks are considered a last option for a customer after they have tried to resolve a dispute with either their product or service. If a merchant does not allow the return of an item and refund the transaction or if a business provided a non-refundable service, a chargeback may be the best way to resolve a payment conflict. 

The chargeback process starts when either an individual or their bank initiates it. This process can take several days due to the number of parties involved in the dispute. The bank is often the judiciary branch in the matter. They rely on the customer to provide details and build a case, and then they look at the facts. Banks often have a straightforward approach and set of guidelines they follow. For example, in the case of ongoing contracts, a bank is more reluctant to reverse a charge, because ongoing contractual obligations carry more weight than a damaged product or overcharged service. 

Are Chargebacks Bad For Business?

Disputes like this are costly for financial institutions because of the number of resources they put in to find a resolution. Resultantly, industries with high chargebacks often find themselves penalized in advance due to the risk involved with their vertical.

Certain chargebacks are expedited due to the security issue they impose on cardholders. In the case of fraud or malicious charges, a chargeback will be issued promptly and investigated thoroughly. A bank’s essential goal is to continually instill trust in credit card and debit card usage. They capitalize on the mass transactions that come from using debit and credit card transactions, as well as the interest paid on debt. If people begin to distrust cards, the profits of financial institutions are threatened. 

Chargeback Limits for Merchants

For merchants, chargebacks pose a different risk. Merchants not only lose money that is refunded after a dispute, but they are also penalized by their bank. Certain banks have different set limits on the frequency and number of chargebacks a company is allowed. These two figures are based on both a percentage of overall issues and the total occurrences. 

If a merchant receives numerous disputes with fraudulent charges, returns, and chargeback issues, they face account closure. Banks are well-practiced in terms of how to deal with companies who are scamming their customers or providing less than favorable products. If a bank sees too many issues with an account, it will shut down payment processing services. Afterwhich, the merchant must look for a new account with higher limits, or redesign their business model to improve the problem. 

How Can I Deal With Chargebacks?

The best way to deal with increasing chargeback issues is to find a company poised to deal with them. Chargebacks911, for example, offers a comprehensive approach to managing those claims. Most recently, they have created a Pandemic Relief Plan to help merchants in need as quickly and efficiently as possible.

There are many moving pieces involved in chargeback resolutions. A holistic approach combines proprietary technologies with real-world experience and proven effectiveness to deliver results. With the right technology helping you streamline the process, solutions can be customized to work with any business and seamlessly integrated into existing systems. 

As a merchant, you’ll want to maximize revenue and avoid future chargebacks while maintaining a neutral perspective on managing chargeback situations. More importantly, fewer chargebacks are key. Prevent them by using the card brand (Visa, Mastercard) pre-chargeback notifications. These notifications help keep your merchant accounts healthy and minimize your risk and revenue loss.