Everything you need to know about Chargebacks

Jennifer Blake Posted on October 02, 2020

In this article, we will cover common questions about chargebacks, also known as ‘disputes’. These include how chargebacks work and what customers can do to file a chargeback with their bank. You will then find out if you are eligible for a chargeback. We will explain the difference between a refund and a chargeback, and explain why your request for a chargeback could be unsuccessful. This article will grow over time and provide more and more in depth information about chargebacks.

Payment help are aimed to help companies minimise chargeback costs and customer chargeback requests (friendly fraud) for merchants by helping customers to check and validate purchases on their bank statements. When combined with delivery tracking, we can also minimise intentional fraud.

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How does a chargeback work? 

A chargeback is when your bank or credit card company returns money to you by taking your money directly out of the merchant’s bank account. It bypasses the customer service process of the merchant and happens as a result of a lack of delivery or a sub-par quality product. The customer or cardholder must have a provable claim, and the merchant’s bank must agree.

Can you get a chargeback on a debit card?

Credit card companies like Visa don’t differentiate between a consumer’s ability to get chargebacks from debit cards or credit cards. They do advise that you try and solve the issue by first contacting the merchant, as a successful chargeback is not guaranteed. However, credit card companies will do their best to represent your interests in a dispute. 

How do you file a chargeback claim?

Begin by making contact with your bank card provider and ask to start a dispute regarding the transaction in question. This begins the process of claiming the money back from the merchant. A successful chargeback claim provides evidence of a breach of the merchant’s duties to the consumer. 

Is a chargeback a refund?

The phrases ‘chargeback’ and ‘refund’ seem interchangeable, but they aren’t. A refund is where the merchant facilitates the process of returning money to the customer. A chargeback is where the customer’s bank forcibly takes money from the merchant’s account to remedy for when goods or services are either sub-par or undelivered. Chargebacks should only happen when a refund is refused. 

Can a chargeback be denied?

Chargebacks are denied if the merchant proves that the transaction was valid and that you are committing ‘friendly fraud’ (the action of purchasing to obtain the money-back through a chargeback). There are other reasons, e.g. you’ve already been compensated, you’re eligible for an insurance claim instead of a chargeback, or you’ve missed the application deadline. 

Why are chargebacks bad?

Chargebacks are bad for business, both short and long term. Reduce chargebacks with a chargeback management plan is essential. For every chargeback, revenue is lost from the transaction, product or service cost, and the chargeback fee. 

If you get more than a certain number of chargebacks, you’ll face either higher rates or even lose your merchant account. After that, you’ll face unfavourable charges from banks or credit card companies that specialise in ‘high risk’ merchants. This can be disastrous for businesses. 

Does a chargeback hurt your credit as a customer?

Legitimate chargeback requests will not affect your credit score. However, if your claim is illegitimate or fraudulent, your bank or credit card company could likely close your account. If your chargeback is legitimate, the bank can still side with the merchant, which might require you to pay a fee of some kind.

How long do chargebacks take?

For most major card companies like Visa and Mastercard, chargebacks should be responded to by the merchant within 30-45 days. During this time, a ‘pre-arbitration’ chargeback will be issued, which could be reversed if the chargeback is found to be illegitimate. The merchant and their bank have approximately ten days after the initial chargeback to file for a reversal. 

How many chargebacks are you allowed?

In general, your chargeback rate can and will affect your business. How negatively the effect depends on your distance from being considered a ‘high-risk merchant’. The more chargebacks, the less likely a credit card, bank or processing company will want to work with you or continue working doing so. If companies carry on working with you, you may deal with unfavourable charges or rates. 

The most important thing is your chargeback ratio, of which the average across most industries is one chargeback per 100 successful orders. For most credit card companies or banks, above 1% could put in you in the high-risk category. Averages vary between industries, with information products coming up with the lowest at an average of 0.5% of transactions. 

Why do companies hate chargebacks?

Because, even in the case of ‘friendly fraud’, merchants can still incur costs. Chargebacks need to be paid by merchants before they have the chance to reverse it, with the onus on them to prove that the chargeback was illegitimate. In the case of legitimate chargebacks due to late delivery, the merchant incurs the costs of processing the order and the product for no profit. Additionally, as mentioned above, chargebacks (even if illegitimate) can damage a companies’ profitability on processing orders (through increased rates and charges) and limit their choices of banks or credit card companies.