Chargebacks FAQs

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 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.

Created to enable frictionless fraud management for eCommerce businesses, chargeback guarantee solutions use machine-learning models to approve legitimate orders and reject fraud in real-time.

Chargebacks  are a mechanism put in place primarily to protect consumers, by allowing them to dispute a transaction and request a reversal of funds directly through their issuing bank and primarily exist to protect consumers. There are dozens of legitimate reasons a consumer may initiate a request for a chargeback.
Here are a few common cases:
01. The customer experienced a merchant error, such as a charge for the incorrect amount, shipping and handling errors, or the customer received damaged or missing goods.

02. The customer fell victim to a fraud attack. Upon noticing an unknown charge on their credit card, they filed a dispute to receive the stolen money back.

03. The cardholder made a legitimate purchase but intentionally disputes a transaction under false pretenses, to obtain a refund while keeping the goods or services. This is chargeback fraud.

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.

Fraudulent chargebacks are specific instances where a consumer intentionally misrepresents a valid transaction to their bank. They claim the transaction was unauthorized, the goods were never received, or the items were defective, despite these claims being untrue. This practice allows the individual to defraud the merchant by receiving a refund while also retaining the purchased item or service.

A survey of online merchants revealed that 2.8 and 2.4 percent of online orders from mid-market companies and small to midsize businesses respectively resulted in chargebacks. 

Find the answer in the article

Most commonly, there are four parties involved in the chargeback dispute process: the customer, the issuing bank, the merchant, and the acquiring bank. In more complex disputes, especially if a resolution can’t be reached between the issuing and acquiring banks, the card network may become involved in an arbitration process to make a final decision.

01. Customer: Initiates the chargeback by filing a dispute with their credit card issuer.

02. Credit card issuer: The customer’s bank that decides whether to approve the refund and forwards the chargeback to the merchant acquiring bank.

03. Merchant: The business from whom the purchase was made. They are legally obligated to pay the charge, but can contest it if they believe it was wrongfully submitted.

04. Merchant acquiring bank: The bank that processes credit card payments for the merchant. They receive the approved chargeback from the issuer and forward it to the merchant arbitration process to make a final decision.

Friendly fraud and chargeback fraud are often used interchangeably. Both refer to situations where a customer makes a legitimate purchase and then files a chargeback, claiming the transaction was invalid. Instead of requesting a refund from the merchant, the recipient of the chargeback contacts the bank directly. As a result of the chargeback, the customer often receives their money back before the merchant gets a chance to look into the reasoning.

Consumers may commit friendly fraud or chargeback fraud for a variety of reasons. For example, when a customer doesn’t recognize a charge, experiences buyer’s remorse, or intentionally exploits the chargeback process. Both are particularly challenging for merchants because they can be committed by legitimate customers.

Find the answer in the article