The mitigate chargeback process can be annoying, confusing and even stressful for merchants. But they ignore the problem at their own peril, since chargebacks – where a cardholder disputes a transaction so they can get their money back while retaining the product or services rendered – accounts for 35% of all fraud losses.
Chargebacks can result from issues arising from a transaction, product or service sold, and also frequently occur because of credit card fraud. Merchants with unclear refund, shipping or inaccurate product or service claims can face a higher rate of chargebacks.
The Chargeback Process Briefly Explained
One reason that merchants find chargeback disputes so frustrating is the process is quite complicated, can take a long time to resolve and can vary according to the brand of credit card used.
The chargeback process begins with a consumer disputing a transaction by contacting their credit card issuer. While credit card companies have more than 150 chargeback reason codes, they generally fall into three categories: The item wasn’t received, or was not as described, or was the result of an unauthorized transaction. Where the category code used is “fraud,” merchants have a low win rate when it comes to disputing the chargeback.
The credit card issuer will review the disputed transaction and then decide if it is valid and deemed worthy of further investigation, or invalid, which would end the chargeback process.
If the chargeback is deemed valid, the customer will immediately receive a credit for the disputed amount, with funds pulled from the merchant’s processing account to the issuing bank. The merchant will also have to pay chargeback fees levied by the payment processors. A chargeback can occur up to 180 days after the initial transaction date. This chargeback period can be extended up to 540 days under some circumstances.
The issuer (cardholder’s bank) will then submit the chargeback to the card network, which passes it on to the payment processor that debits the merchant’s processing account and credits the cardholder’s account.
Armed with the issuer’s funds on behalf of the cardholder, the payment processor will let the merchant know about the dispute (online or via physical mail). The merchant is then invited to respond. Recent card rules have decreased the response time from 30 days to two weeks. It’s recommended that a response, or “representment,” should be sent to the processor no later than five days following the chargeback.
