Chargebacks are a common occurrence faced by retail, e-commerce, and business-to-business merchants, and are often due to fraudulent activity. Merchants should familiarize themselves with the chargeback process to ensure they're prepared to handle such a situation.
Here is what the typical chargeback process entails:
The Customer Notices a Questionable Transaction
Someone who notices a questionable charge on his or her credit card bill will contact the card’s issuing bank to dispute the transaction, either via the phone or online. The issuing bank will review the complaint and determine if it’s a legitimate claim. While many chargeback cases result from credit card fraud, others derive from false claims from customers. This is known as chargeback fraud (not to be confused with friendly fraud).
The Issuing Bank Contacts the Merchant
If the chargeback claim is verified by the issuing bank, it will then reimburse the customer whatever money he or she is owed by crediting the account and debiting the merchant’s bank. The funds are then transferred from the merchant’s bank to the issuing bank. The next step involves the issuing bank contacting the business where the suspicious transaction took place, to inform the merchant about the chargeback. At this point, the merchant is responsible for paying that money back to its bank and eliminating the debt.
The Merchant’s Acquiring Bank Investigates
Although the card’s issuing bank may have verified the claim, part of the chargeback process also gives the merchant an opportunity to respond. The merchant’s acquiring bank can investigate and obtain evidence to prove the transaction is legitimate. This is then shared with the issuing bank, which makes the final decision on whether or not the chargeback is necessary.
The Merchant Pays a Chargeback Fee
Whatever the outcome, the merchant must pay a chargeback fee to reimburse its acquiring bank for the time, effort and money spent investigating the matter. It’s a small price to pay, however, if the bank can prove the customer made a false claim.
To help ensure your business doesn't frequently suffer chargebacks, it’s important to work with the right acquiring bank to not only provide you with the most secure credit card processing solutions, but the resources to thoroughly assess the validity of a claim.
Learn more about what chargebacks are and why they’re bad for business.