Title: How to dispute and prevent chargebacks as a small business and protect your chargeback reputation with Visa Mastercard.
In the world of credit card processing, chargebacks are a crucial aspect that merchants and consumers alike should be aware of. Chargebacks can significantly impact businesses and cardholders, so understanding what they are and how they work is essential. In this blog post, we will provide a comprehensive definition of chargebacks, discuss the reasons for their occurrence, and explore the implications they have on credit card transactions.
What is a Chargeback?
A chargeback refers to a transaction reversal initiated by a cardholder through their credit card issuer. It allows cardholders to dispute a charge on their statement and request a refund from the merchant. When a chargeback occurs, the funds from the disputed transaction are temporarily held by the cardholder's bank, pending the resolution of the dispute.
Reasons for Chargebacks:
Chargebacks can stem from various reasons, including:
Types of Chargebacks
Implications of Chargebacks:
Chargebacks have several implications for both merchants and cardholders:
How do Chargebacks work?
Purchase and Payment Dispute Initiation
A customer sees a suspicious or charge on their credit card statement or deduction from their bank account. Or, they want to dispute a charge due to bad service or never receiving the products they were charged for. They contact their bank (which we’ll refer to as the “issuing bank”), and they open an investigation.
Communication and evidence collection
The issuing bank alerts the merchant’s bank (also commonly referred to as the “acquiring bank”) of the chargeback and includes a chargeback code.
Chargeback reason code: A standardized code that indicates the reason a charge was disputed and a chargeback occurred. They help categorize cardholder disputes and determine next steps, and they vary by card network. Visa, Mastercard, Discover and American Express all have unique chargeback reason codes.
Next, the merchant’s bank works with the merchant to collect and provide to the issuing bank any evidence that may refute the chargeback.
Issuing bank decision
The issuing bank’s investigator reviews all of the available evidence and determines whether or not the cardholder’s claim is justified. They either issue a chargeback to the merchant’s bank, or they find that the charge is authentic and side with the merchant.
If a chargeback is issued, the cardholder’s bank reverses the fraudulent charge by giving them a provisional credit. Then, they charge the merchant this credit amount to compensate for the bank’s loss, plus a chargeback fee.
If the two parties still do not agree, we step into a chargeback dispute process called arbitration. This gets the credit card company involved. Both the issuing and merchant banks present their evidence, and the card company makes a final decision to settle the dispute.
How do I dispute a chargeback?
Connect directly with the customer
To minimize chargebacks, merchants can implement preventive measures such as:
Chargebacks play a significant role in credit card processing, serving as a consumer protection mechanism while impacting businesses. By understanding the concept of chargebacks, their causes, and the potential consequences, both merchants and consumers can navigate the world of credit card transactions more effectively. Implementing preventive measures can help businesses mitigate chargeback risks and maintain positive customer relationships, promoting trust and long-term success.