A chargeback is a process where a cardholder disputes a charge with their credit card issuer. The issuer then requests a refund from the merchant for the disputed amount.
Chargebacks can happen for a variety of reasons, but most often they occur because the cardholder doesn’t recognize the charge, the cardholder is disputing the quality of the product or service, or there was fraud involved.
How do chargebacks work?
When a cardholder contacts their issuer about a disputed charge, the issuer initiates a chargeback limits. The issuer then requests a refund from the merchant for the disputed amount, and the merchant has a certain amount of time to respond.
If the merchant doesn’t respond or doesn’t provide enough evidence to prove that the charge is valid, the issuer will refund the cardholder and the merchant will be charged a fee. If the merchant does provide enough evidence to prove that the charge is valid, the chargeback will be reversed and the merchant will not be charged a fee.
What are the chargeback limits?
There are two types of chargeback limits: per transaction and rolling.
Per transaction limit: This is the maximum amount that a cardholder can dispute in a single transaction. For example, if the per transaction limit is $500, the cardholder can only dispute $500 or less in a single transaction.
Rolling limit: This is the maximum amount that a cardholder can dispute in a rolling period of time. For example, if the rolling limit is $1,000 and the cardholder disputes a charge of $500, they can only dispute an additional $500 in charges within the rolling period.
What are the chargeback fees?
There are two types of chargeback fees: merchant fees and cardholder fees.
Merchant fees: These are the fees that a merchant is charged when a chargeback is initiated. Merchant fees vary depending on the card network (Visa, Mastercard, etc.), but they are typically around $20-30 per chargeback.
Cardholder fees: These are the fees that a cardholder is charged when they initiate a chargeback. Cardholder fees are typically around $30 per chargeback.
What is the difference between a chargeback and a refund?
A refund is when a merchant voluntarily refunds a customer for a purchase. A chargeback is when a cardholder disputes a charge and the issuer requests a refund from the merchant.
Refunds are processed through the merchant’s account, while chargebacks are processed through the card network. Refunds can be given for any reason, while chargebacks can only be given for specific reasons.
What are the common reasons for chargebacks?
There are many reasons why a cardholder might initiate a chargeback, but some of the most common reasons include:
-The cardholder doesn’t recognize the charge: This is the most common reason for chargebacks. If the cardholder doesn’t recognize the charge, they will likely initiate a chargeback.
-The cardholder is disputing the quality of the product or service: If the cardholder is not happy with the quality of the product or service,
-There was fraud involved: If the cardholder thinks that their card was used fraudulently, they may initiate a chargeback.
What are the consequences of chargebacks?
There are a few consequences of chargebacks that merchants should be aware of:
-Merchants can be charged fees: As mentioned earlier, merchants can be charged fees when a chargeback is initiated. These fees can add up, so it’s important to try to avoid chargebacks.
-Merchants can lose their merchant account: If a merchant gets too many chargebacks, they could lose their merchant account. This would mean that they would no longer be able to accept credit card payments.
-Merchants can be put on a blacklist: If a merchant gets too many chargebacks, they could be put on a blacklist. This would make it difficult for the merchant to get a new merchant account.
What can merchants do to avoid chargebacks?
There are a few things that merchants can do to avoid chargebacks:
-Provide clear terms and conditions: Merchants should provide clear terms and conditions so that customers know what they are agreeing to.
-Get authorization for large charges: Merchants should get authorization for large charges so that the cardholder knows that the charge is legitimate.
-Keep good records: Merchants should keep good records of their transactions in case a chargeback is initiated.
-Use AVS and CVV: Merchants should use AVS and CVV to verify that the cardholder is who they say they are.
-Ship orders promptly: Merchants should ship orders promptly so that the customer receives their purchase in a timely manner.
-Respond to customer inquiries: Merchants should respond to customer inquiries in a timely manner. This will help to avoid chargebacks
