Chargebacks Glossary

Chargebacks are a mechanism that allows consumers to dispute a transaction and request a reversal of funds through their issuing bank, typically when they believe a transaction was fraudulent, unauthorized, or the goods or services were not provided or failed to meet their expectations. For ecommerce merchants, chargebacks can pose significant financial and operational challenges, as they not only result in lost revenue but also involve additional fees and the potential for penalties if chargeback rates become too high. However, merchants have the option to contest chargebacks by providing evidence to dispute the claim, a process known as chargeback representment. Successfully contesting a chargeback can help merchants recover lost funds and protect their reputation.

First-party fraud

First-party fraud happens when a cardholder intentionally disputes a transaction under false pretenses, in order to obtain a refund while keeping the goods or services. This may be referred to as chargeback fraud, friendly fraud, liar buyer, or first-party misuse. This can occur due to error, if the cardholder forgets they made the purchase or doesn’t recognize it on their billing statement. However, illegitimate actors also intentionally abuse the chargeback mechanism, claiming the transaction was unauthorized or the goods were never received/defective in order to defraud the merchant. This is also often linked to refund abuse – a common MO of professional fraudsters involves filing a false refund claim, and if it isn’t accepted, escalating to a chargeback.

Item-not-received chargeback

This is among the acceptable reasons for filing a chargeback is Item or Service Not Received—or INR, for short. If a customer did not receive an item or service that they purchased, they may dispute the charge with their issuing bank, initiating the chargeback process. While many legitimate customers claim INR in good faith, fraudsters can also abuse this process by intentionally requesting a chargeback even when they received the goods or services—this is a form of First-Party Fraud. These chargebacks can and should be contested, in order for the merchant to recover their revenue and deter future first-party fraud.

Chargeback representment

When a chargeback is filed, the merchant may contest it in a process called representment, where the merchant has the opportunity to re-present the transaction with additional evidence of its vailidity.  This can include IP, email, billing and shipping address, proof of communication with the customer, proof of delivery, and more. If the evidence submitted is compelling, the issuer may decide to reverse the chargeback and return the funds to the merchant. This is also known as dispute resolution. 

Chargeback reason codes

Chargeback reason codes are a numeric or alphanumeric code that indicates the reason for a chargeback, such as fraud, authorization issues, or customer disputes. Each card network (Visa, Mastercard, etc.) has its own set of reason codes.