Chargeback

Chargeback is the process by which a payment made with a credit or debit card is reversed by the card-issuing bank on behalf of the cardholder after a dispute with the merchant. It is governed by card network rules (such as Visa, Mastercard, and American Express) and applicable consumer protection laws. A chargeback can result in funds being returned to the cardholder and may involve the merchant’s acquiring bank and payment processor.

Process overview: When a cardholder disputes a transaction, the issuer reviews the claim and may request supporting documentation from the merchant. If the issuer upholds the claim, funds are reversed from the merchant’s account to the cardholder. The merchant can contest the decision through a representment process by submitting evidence (receipts, delivery confirmation, communication records, etc.). The card network evaluates the evidence and renders a final decision. Timeframes vary by network and jurisdiction.

Common reasons: Unauthorized or fraudulent transactions, goods or services not received, goods or services not as described or defective, billing errors or duplicate charges, and issues with merchant’s processing or subscription charges. Chargebacks can also arise from processing mistakes or policy violations.

Impact and defenses: For merchants, chargebacks can be costly due to reversed payments, processing fees, and possible penalties or increased processing risk. To mitigate chargebacks, merchants should maintain thorough records, provide clear descriptions and refunds policies, obtain strong evidence of delivery and customer consent, and implement fraud prevention measures (address verification, CVV checks, 3D Secure).

Limitations: Chargebacks are subject to network rules and time limits; not all disputes result in a reversal, and some disputes are resolved in favor of the merchant. They are distinct from simple refunds offered by the merchant.