From the outside, a chargeback can seem just like a traditional refund. But there is one big difference: rather than coming from the buyer’s contact with the seller, the bank is forcibly taking money from a seller’s account.
There are many reasons that chargebacks exist. They are there to keep customers feeling secure and keep them loyal to the credit card companies that act in their best interests. Chargebacks are also a significant deterrent to dishonest sellers that are looking to make quick money off sub-par products or services. It is in a merchant’s best interests to be upfront about the quality of the products and general nature of what consumers should expect.
In more serious situations, chargebacks also help cardholders that have become the victim of genuine criminal fraud, as the stolen money is traceable and therefore returnable.
In the 1970s, when credit cards were emerging as a new payment option, there was widespread fear that people could lose their cards and be the victims of fraud. Additionally, there was a worry that merchants could use people’s credit cards outside of agreed funds and exploit them. In response, credit card companies began using chargebacks to retrieve funds for sub-par products and services, giving card users the confidence that their money was safe even if it was already in the seller’s bank account. Essentially, chargebacks are the customer’s safety net.
If chargeback rates for particular merchants remain higher than usual, merchants could run the risk of having their bank account terminated. Similarly, cardholders that file several wrongful chargeback claims can risk being ineligible for chargebacks in future. Chargebacks should be a last resort; the first step should always be for customers to speak to the merchants.
To reduce the devastating losses that come from several successful chargebacks against your business, here are few things to keep in mind. Merchants should do their utmost to provide high-quality products or services and should set and keep to reasonable delivery deadlines. Merchants should ensure they have great customer services processes and policies in place. Policies should include a returns policy and opportunities for customers to communicate with merchants to express disappointment or unhappiness.