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Chargebacks are very significant for the protection of public confidence, especially in payment transactions. It increases the security of customers in debit and credit card payments. Especially when the consumers have to deal with online transactions, chargebacks might be applicable.
Specifically, suppose a customer can make a dispute complaint against a purchased product on the account statement or the transaction reports. In that case, he or she will obtain a returned payment to the cards. These returned charges are known as chargebacks. However, the chargebacks can be a headache for the merchants.
Definition of a Chargeback
Chargeback simply means that the bank will charge back the amount of the disputed transaction from the merchant. The bank will repay the money to the cardholders without any approval from merchants.
Banks review the transactions while a cardholder raises a disputed charge. If the dispute reason is to some extent valid, the bank provides a provisional credit to the accounts of customers after the chargeback claim is solved.
The merchants pay for the dispute claims. The cardholders initiate chargebacks which the banks assess. Therefore, a single chargeback might take some months to a year for completion.
Often banks also file chargebacks for authorization or any processing errors, but most of the chargebacks occur with a customer’s complaint. In most cases, the consumers think of a fraudulent charge that has occurred to the accounts. Usually, customers assume that they did not get the proper product as per the price. On the other hand, merchants refuse to work on these kinds of subjective complaints to resolve disputes.
Examples of a Chargeback
Once the process of chargebacks initiates, it goes back and forth among the customers and merchants until one of the parties accepts the liability or the card network finds the reason for the dispute and declares it as a resolved case.
There are three types of chargebacks such as true or criminal, friendly fraud, and merchant errors. Every kind of chargeback could occur due to different circumstances, and each of them needs to be handled in different ways.
True fraud chargebacks
- These chargebacks are unauthorized charges against a card (credit) by an identity thief or scammer. Therefore, in those cases, merchants are strongly advised not to dispute the chargebacks to waste time and resources.
Friendly fraud chargebacks
- When customers raise a dispute or report reasonable charges as fraudulent for getting a reversed pay, the friendly fraud chargebacks occur. Sometimes they do it consciously with criminal or malicious intentions, but in many cases, they claim the charge due to a lack of knowledge and patience. Therefore, true frauds are often misinterpreted as friendly frauds or vice versa.
Merchant error chargebacks
- This chargeback occurs when a merchant makes an error while delivering the products or services. The errors include shipping or wrong products, errors in the quality of products, and others. Merchant error chargebacks can be prevented by developing better quality business operations such as helpful customer services, easily available support services, or even a proper refund policy.
Many people messed up the idea of chargebacks with refunds, but these two are very different. A cardholder contacts banks to issue or force a reversal of the transaction. On the other hand, in refunds, a customer asks the merchant first, and the latter will initiate the process.
