A chargeback is the reversal of a card transaction which happens when a cardholder is attempting to get their money back. A chargeback is normally initiated by the cardholder when they want to claim their money back for a transaction which they believe is not justified. It can also be initiated by a cardholder’s bank / card issuer.

Chargeback rules vary slightly by card scheme however in all cases the rules are very prescriptive in terms of the time-frames that apply at all stages of the process. It is therefore important that chargebacks are dealt with promptly and within the time-frame specified.

Examples of why a cardholder may initiate a chargeback

  • The cardholder doesn’t recognise the payment on their statement (this could potentially be due to fraud)
  • The goods or services the cardholder ordered weren’t delivered
  • The cardholder was expecting a refund that hasn’t come through to their account
  • An error with the sale. For example: the cardholder 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
  • The merchant or the cardholder has made an error at the point of sale, such as by using a card that has expired

Examples of why a card issuer may initiate a chargeback

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

The chargeback process

The chargeback process is very structured and follows the steps below:

1. Request for information, also called a ‘retrieval’. (Sometimes this step is skipped, and the claim immediately jumps to step 2)
If a cardholder or their bank simply wants to question what a transaction was, they can send a ‘request for information’. This only requires the merchant to respond with information about the transaction in question, usually just requiring a copy of the transaction receipt.
At this stage, the merchant does not need to refund any money.

2. Chargeback 

If a claim reaches this stage, the money is automatically taken from the merchant’s bank account and returned to the cardholder or the cardholder’s bank. There will nearly always be an additional fee paid by the merchant for each chargeback claim.

3. Dispute / No dispute

If the merchant disputes the chargeback an amount of time is given for the merchant to defend their position, depending on the reason why the chargeback was raised.  For example, the merchant could provide the merchant receipt for the transaction. Alternatively, the merchant can choose not to dispute the chargeback if they recognise it as a legitimate claim.

4. Refund (if applicable)

If the merchant’s defence is upheld by the acquirer and the cardholder’s card issuer, then the merchant will be refunded.  If it is not upheld, then the cardholder keeps the money.

Steps a merchant can take to prevent chargebacks

There are a number of steps a merchant can take including:

  • Make sure your business name displays properly on customer receipts and bank statements, to help your customer remember making the payment
  • 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 being provided

For further information, please click on the link below to access an excellent guide produced by Barclaycard on how to prevent chargebacks.

Barclaycard guidance on how to help prevent chargebacks