Chargebacks Overview

This article will provide a basic introduction to chargebacks.

What is a Chargeback?

Everyone has purchased something online: a new pair of shoes, a streaming service subscription, or a tropical island getaway. While we hope these goods and services are exactly what we would expect, sometimes they are not. In these cases, we normally would reach out to the business and ask for a refund. But what happens when it doesn’t go as smoothly as we plan? Credit cards offer an extra layer of protection for cardholders; they can file a chargeback to resolve the problem.

A chargeback occurs when a cardholder contacts their issuing bank (such as Capital One, American Express, or Chase) and disputes a payment made on their credit card. The cardholder is asked to give information about the reason for filing a chargeback, which then categorizes the chargeback. Chargeback reason codes may vary, but often include the following:

• Goods/services are not delivered
• Products received are not as advertised
• Merchant is assumed not to be following its refund policy
• Charged by mistake
• Fraudulent transactions

Whatever the case may be, the cardholder feels they were wrongfully charged and are requesting their money back with the help of their bank. A chargeback can be initiated up to 180 days after the purchase.

Once the chargeback has been filed, the issuing bank will temporarily credit the cardholder and deduct the funds from you, while the chargeback process runs its course. But don’t worry, you will have a chance to win those funds back. By disputing the chargeback with compelling evidence, you can show the issuing bank why the transaction is valid.

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How Are Chargeback Funds Pulled from My Account?

When a chargeback is received, there will be an adjustment made to your deposit the following business day. In this adjustment, you will see that the total adjustment equals the amount of the chargeback, plus any chargeback fees. If you do not have a deposit for the next business day due to a lack of activity, the amount will be debited.

When a chargeback is won and funds are returned from the cardholder’s bank, those funds are returned in the next deposit.

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What Details Will be Available for Chargebacks?

The amount, dispute reason, original transaction that was disputed, and the payment account related to the chargeback will be available to view. There is also guidance when selecting various types of evidence you may attach, such as whether or not the document should be signed and what should be on the document.

How to Prevent Chargebacks

Receiving a chargeback is never ideal. While never completely avoidable, you can take a few steps to lower your chargeback risk. The list below highlights some best practices for avoiding chargebacks.

• Having a clear refund policy: Have a plan in place for when a refund is requested by your customer. Make sure that the policy is clear on your website or in your terms and conditions. Merchants who have no refund policy tend to have higher chargeback rates.
• Making it easy to contact you: If a customer can settle the issue with you, they are much less likely to charge back a transaction. In fact, issuing banks always request that customers attempt to settle disputes with merchants before filing a chargeback.
• Stepping up your customer service game: Having a great customer service experience can reduce chargebacks. When you have a team that is responsive, accurate, and empathetic, your customer will feel like they were able to get their issue resolved.
• Upfront product descriptions: Represent products and services accurately by offering detailed descriptions and clear pictures. This helps customers have confidence in what they are purchasing and avoid a chargeback because the customer feels deceived.
• Avoiding manually keying credit card information: Everyone makes mistakes, and keying in the wrong information could result in a chargeback. It’s always best to avoid manually keying in cards when it’s possible.
• Having clear billing descriptors: If a customer doesn't recognize your business on their credit card statement, you increase the likelihood of them filing a chargeback.
• Cancel Recurring Transactions: If a customer files a chargeback, even for a non-subscription-related reason code, make sure to cancel any future recurring transactions. Additional transactions can lead to additional chargebacks.

Chargebacks can be expensive and time-consuming. By focusing on prevention, you can reduce financial losses, protect your reputation, and maintain a positive relationship with your residents.

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Resources

• Understanding Chargeback Reason Codes and Fees
• Disputing a Chargeback and Submitting Chargeback Evidence
• Chargeback Report

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