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What is a Chargeback?

Tillie Demetriou
14 Sep 2023

As a business owner, you want to offer your customers the best possible experience when they purchase goods or services from you. But sometimes, things don't go as planned. A customer might not be happy with their purchase, or there might be a problem with the product or service itself. In these cases, the customer might request a chargeback from their credit card issuer.

But what exactly is a chargeback? And what does it mean for your business? 

We're giving you the rundown on chargebacks: what they are, how they work, and what you can do to prevent them so you can keep your business running smoothly and your customers happy.

What is a chargeback?

So what exactly is a credit card chargeback? It's essentially a refund requested by a credit card holder from their issuer. Let's say you're a bar owner, and a customer uses their credit card to pay for their drinks. But when they get their statement at the end of the month, they see that you've charged them twice. They contact their issuer and request a chargeback for the erroneous charge. If the issuer approves the chargeback, you'll have to refund the customer's money. 

How do chargebacks work?

When a customer requests a chargeback, their issuer will start an investigation. They'll look at the evidence and decide whether or not to approve the chargeback. If they decide in favour of the customer, you'll have to refund the customer's money.

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What are the three types of chargebacks? 

There are three types of chargebacks: fraud chargebacks, friendly fraud chargebacks, and true errors.

  • Fraud chargebacks occur when the customer believes that they've been the victim of fraud. For example, if their credit card is stolen and used to make a purchase without their knowledge, they can dispute the charge and get their money back.
  • Friendly fraud chargebacks occur when the customer is not happy with the purchase. They might have received a defective product or feel they were misled about what they were buying. 
  • True errors are just that: mistakes that were made by the business, such as accidentally charging a customer twice for the same purchase.

What are the consequences of a chargeback?

You'll have to refund the customer's money if you receive a chargeback. And you might also be charged a fee by your acquirer or processor. 

What is a chargeback fee? Chargeback fees are typically around £15 [1], but they can vary depending on your processor or acquirer. And if you receive a lot of chargebacks, you might even be fined by your credit card issuer.

Chargebacks can also be time-consuming and costly to resolve. If you have a lot of chargebacks, your acquirer or processor might decide to terminate your account. And if you have a high chargeback rate, finding another provider willing to work with you might be difficult.

Can a merchant dispute a chargeback?

In some cases, merchants can dispute a transaction chargeback. But it's important to note that the dispute process can be long and arduous. And even if a merchant does dispute a chargeback, there's no guarantee they'll win the case.

If you're thinking about disputing a chargeback, you should first contact your acquirer or processor. They'll be able to give you more information about the chargeback and whether or not it's worth disputing. If they agree that it's worth disputing, then they'll help you gather the evidence that you need to make your case. This might include:

  • Proof of delivery: Receipts or other documentation that proves you delivered the goods or services to the customer
  • Documented communication: Emails or other correspondence with the customer that shows they were satisfied with the purchase
  • Confirmed CVV: Evidence that the customer provided their CVV (card verification code) when making the purchase
  • Acceptance of terms and conditions: A signed contract or other documentation that shows the customer agreed to your terms and conditions
  • AVS check: Evidence that the AVS (address verification system) check confirmed the billing address match
  • Refund issued: Documentation that proves you issued a refund to the customer

If you have this documentation, then you'll have a good chance of winning your chargeback dispute. But even if you don't have all of this documentation, you might still be able to win your case.

How often do merchants win chargeback disputes?

According to The Chargeback Field Report found that merchants attempt representment in 43% of cases. However, their net win rate (representments accepted by the issuer that do not escalate to pre-arbitration) stands at just 12% [2].

So while it's possible to win a chargeback dispute, it's not always easy. And even if you do win, you might not get the money back in your bank account right away. It can take months for the chargeback to be reversed, and you might have to pay a fee to your acquirer or processor.

Top Tips for preventing chargebacks?

There are a few things you can do to prevent chargebacks, including:

Train your staff on proper billing procedures

Making sure your staff is properly trained on billing procedures can help reduce the risk of chargebacks. If your employees understand how to process payments and handle customer disputes correctly, they'll be less likely to make mistakes that could lead to a chargeback.

Use clear and concise invoices

Using clear and concise invoices can help prevent customer misunderstandings that could lead to a chargeback. Be sure to include all relevant information on your invoices, such as the customer's name, address, and contact information. You should also include a detailed description of the goods or services purchased, as well as the purchase price.

Keep good records

Keeping good records can help you against unwarranted dispute chargebacks. Keep track of all your customer transactions, including the date, time, and amount of each purchase. You should also save relevant documentation, such as receipts, invoices, and emails.

Respond quickly to customer inquiries and complaints

If your customer has a question or complaint, respond quickly and resolve the issue to their satisfaction. The longer you wait to address a problem, the more likely the customer will request a chargeback.

Offer pre-authorisation at your hospitality or retail locations

If you have a hospitality or retail business, you can reduce the risk of chargebacks by offering pre-authorisation at your location. Pre-authorisation is when the customer's bank approves the purchase amount before processing the transaction. This can help prevent customers from requesting chargebacks for unauthorised transactions.


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