Chargebacks

Chargebacks are a consumer protection mechanism in card payments, where the card issuer initiates a reversal of funds to the cardholder after a dispute with a merchant. They occur within credit, debit, and prepaid card networks when a cardholder challenges a transaction and seeks a return of the amount charged.

Process: The cardholder files a dispute with the issuer. The issuer investigates and may request supporting documentation from the cardholder and the merchant. If the issuer finds the claim valid, funds are reversed from the merchant’s acquiring bank and returned to the cardholder. The merchant’s processor may issue a retrieval request for evidence and, if possible, initiate a representment to contest the charge. Time limits and reason codes govern each step, and the exact workflow varies by network.

Reasons: Common chargeback reasons include fraudulent or unrecognized transactions, goods or services not delivered, not as described or defective, duplicate charges, and credits not processed. Some disputes arise from processing errors or billing mistakes. Card networks provide standardized reason codes and thresholds that determine how disputes are handled.

Impact and roles: Participants include the cardholder, issuer, acquirer, merchant, and the card networks. For merchants, chargebacks can result in loss of funds, card network fines, and increased processing costs, as well as negative chargeback ratios that may affect merchant accounts.

Representment and prevention: Merchants can defend a chargeback by presenting evidence—receipts, delivery confirmation, cancellation and refund records, and communications. Preventive measures include clear product descriptions, accurate billing, secure payment authentication, address verification, fraud monitoring, and robust order fulfilment.