What is a chargeback – and why do they happen?

From your customer’s perspective, a chargeback is a reversal of a payment transaction, in an attempt to get their money back.

The difference between a chargeback and a refund is that with a chargeback, instead of your customer trying to get a refund through your normal process, they would take up the issue with their bank.  

Chargebacks give cardholders a way to claim back money for transactions that they or their bank feel isn’t justified.

A chargeback can happen for many different reasons:

• The customer doesn’t recognise the payment on their statement (this could potentially be due to fraud)
• The goods or services the customer ordered weren’t delivered
• The customer was expecting a refund that hasn’t come through to their account
• An error with the sale. For example: the customer was charged twice for one set of goods; or they were charged the wrong amount; or if they cancelled a subscription plan but were still charged.
• You or your customer has made an error at the point of sale, such as by using a card that’s expired

Chargebacks may also happen because the customer’s bank disputes a transaction, for example:

• The transaction was not authorised by the cardholder’s bank
• The account is closed
• The incorrect card details have been processed

1. Request for information, also called a ‘retrieval’. 

(Sometimes this step is skipped, and the claim immediately jumps to step 2)

If a customer or their bank simply wants to question what a transaction was, they can send a ‘request for information’. This only requires that you respond with information about the transaction in question, usually just requiring a copy of the transaction receipt.

At this stage, you won’t be required to pay back any money. You’re encouraged to respond a request for information as quickly as possible.

2. Chargeback 

If a claim reaches this stage, the money is automatically taken from your merchant account and returned to the customer or their bank.

There will nearly always be an additional fee from your acquirer for each chargeback claim on your account.

3. Dispute / No dispute

If you want to dispute the chargeback, you’ll have a certain amount of time to defend it by providing evidence, depending on the reason the chargeback was raised. An example would be to provide the merchant receipt of the transaction. That’s why it’s important you keep your merchant receipts safe for record keeping.

Alternatively, you can choose to not dispute the chargeback if it you see it as a legitimate claim.

4. Refund (if applicable)

If your chargeback defence is upheld by your acquirer and the customer’s issuing bank, then you will be given the money back in due course.

If you lose the chargeback appeal, then the customer keeps the money and you will unfortunately be out of pocket. The disputed amount will be added to your merchant bill, and the customer will keep their money.

What can you do to prevent chargebacks?

There are lots of ways that you can protect your business from chargebacks, ranging from common sense methods, to some less obvious best practices:

• Make sure your business name displays properly on customer receipts and bank statements, to help your customer remember making the payment
• Take steps to protect yourself against fraud (see previous section on fraud, above)
• Implement a fair and transparent returns policy. This increases the chances your customers will follow your normal returns procedure instead of initiating a chargeback
• Have detailed and accurate product descriptions. This helps prevent any confusion or dissatisfaction later down the line, as it sets realistic expectations of the product/service results
• Make sure you document any conversations with your customers as a backup, in case you need to provide evidence in the future.

For more in-depth information on chargebacks and how to prevent them, please visit our help and support page.