Merchant Credit Card Account Chargeback Basics

For a merchant credit card account user, chargeback is a transaction that the issuer returns to the payment processing bank as a financial liability and which, at this point, the processor may return to the retailer. In short, it reverses a sales:

• The issuer subtracts the sale's amount from the customer's card account. The customer receives a refund and is no longer financially liable for the dollar amount of the sale.
• The card issuer initiates a chargeback through the association to the processor for the dollar amount of the sale.
• The processor will, usually, deduct the sale's amount from the merchant credit card account user's account. The retailer ends up losing the amount of the transaction.

For retailers, chargebacks can be very costly. You can lose both the sale's amount of the payment that is charged back and the related product. You will also, of course, be incurring your own internal costs for handling the chargeback. As you control how your staff manage transactions, you can preclude many unnecessary chargebacks from occurring by simply training your personnel to pay attention to a few details.

Chargeback Reasons

The most common reasons for a merchant credit card account user to receive a chargeback are:

• Customer disputes.
• Payment processing errors.
• Authorization issues.
• Fraud.

Although merchants probably cannot avoid chargebacks altogether, you can certainly take steps to limit or at least prevent some of them. Many chargebacks are the consequence of an avoidable mistake, so the more you understand about proper transaction processing procedures, the less probable it is for you to inadvertently do, or fail to do, something that could lead to a chargeback.

Customer disputes are one of the most typical reasons for chargebacks. A consumer may dispute a transaction because:

• A refund has not been issued when the consumer expected it would be.
• Product ordered was never received.
• A service was performed not as expected.
• The consumer did not make the payment, but it was fraudulent.

As these chargeback types may indicate customer dissatisfaction - and the possibility for lost sales in the future - remedying the underlying issues should be an integral part of each merchant credit card account user's customer service policies.

When the payment networks detect an invalid chargeback, it is automatically sent back to the card issuer that originated it, and the retailer and acquirer never see it.