September 17, 2020
Average Read Time: 4 minutes
A Chargeback is a dispute initiated by a cardholder with their bank against a transaction on their credit card. They are meant to protect consumers from unauthorized transactions or as consumer protection for products and services.
When a cardholder notices a fraudulent transaction on their bank statement or has a problem with a purchase and is unable to resolve the issue with the merchant, they can file a Chargeback. To do this the cardholder contacts the issuing bank for their card and files a dispute. The bank will ask about the nature of the dispute and request any supporting evidence if required. Once the claim is opened, the bank will select the appropriate reason for the dispute and submit the dispute claim into the card association dispute portal. This is where the acquiring bank that represents the merchant will be notified.
On the Merchant side, they are notified by their acquiring bank, requesting information to support the validity of the transaction. The reason for the dispute will determine what is required to respond. The Merchant has a set amount of time to respond with documents to support the sale, and once support is sent to the Acquirer they will review for missing data, then forward the evidence to the bank through the association portal.
What should I do if I receive a Chargeback?
Each card association sets its own dispute rules, reason codes, and requirements for response documents but there are similarities between all of them. Here are a few examples:
How do I prevent Chargebacks in the future?
Chargebacks are an inherent risk of accepting credit card payments, and there is no way to guarantee you will never receive a dispute. However, you can take steps to reduce your risk.
Possible Red Flags
Properly disclosing your cancellation and refund policies will also reduce your chargebacks and allow you to dispute claims of credit not processed. The card associations have very specific rules and requirements for what the deem Proper Disclosure.
Disclosure for Card-Present Merchants
Disclosure for Card-not-present Merchants
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