What is a chargeback: The answers you’ve been looking for

Customers are always at the forefront. The popularity of this mantra is growing at a blistering pace, making shoppers even more determined to fight for their rights. If they don’t like what’s purchased, they will try to redeem their money. Here is how things may be done: a buyer can resolve the conflict with a merchant or ask a financial institution to reverse the payment. If the second way is chosen, it is called a bank chargeback, and it can wreak havoc on your business.  

According to recent studies, the number of repayments increases by 41% every two years. About 81% of consumers file chargebacks only because they can’t tell them from standard returns or want to batten on merchants. Only 5-10% of buyers request to be repaid because of fraudulent activity in their credit cards. 

As you see, shoppers may have rock-solid reasons for using this powerful tool of consumerism. However, they are just seeking easy money by demanding refunds most of the time. Whether you are a rookie in the ever-changing world of e-commerce or a shrewd business owner who knows the ropes, you’d better find out what chargebacks mean and how to reckon with them. Dealing with reimbursement is no picnic. For this very reason, we’ve come up with this guide that will shed light on the following: 

  • definition of a chargeback, its reasons and purposes
  • main steps of money return processing 
  • cost and effects of chargebacks
  • merchants’ and customers’ responsibilities

Chargebacks won’t necessarily squeeze your e-store out, and no one says you’ll go broke. But constant returns may put a spanner in the work of your enterprise. Stay with us as we are about to dig deeper into this topic and reveal the answers you’ve been waiting for. 

Chargeback definition

Even though your online store works like a well-oiled machine and generates a substantial profit, frequent repayments can take their toll on your enterprise. That’s why you should find out more about money returns and the ways of staying away from them. 

So, the time is ripe to see what a chargeback means. It is when a shopper gets ahold of their bank and requests the refund. Bank, in its turn, reviews the transaction and sends funds back to the cardholder. 

Intended to protect customers from irresponsible merchants and poor-quality products, chargebacks come in useful when something goes wrong. On the other hand, they can make a yawning hole in the merchant’s budget. So, why the money-back rules were created in the banking sector in the first place? Read on.

4 Purposes of chargebacks

  • Superb products and services Another purpose that stands behind reimbursement is quality control. Unfortunately, the web is full of merchants who sell good-for-nothing products. The risk of being charged back deter them from doing so. 
  • Customers’ satisfaction A happy shopper is the one who will come to the store again. That’s why sellers bend over backwards to ensure A-class shopping standards. And money-back guarantee is among the top things that make consumers gravitate towards the store. 
  • High level of honesty If customers pay for their purchases upfront, they can fall victim to unreliable sellers who can fail to deliver the order or send wrong goods to them. The threat of refunds makes merchants more honest. 
  • Anti-fraud protection When filling in credit card details on a website, no one can be sure that the information is 100% protected from black hats. The internet is brimming with hackers who can easily sneak in banking accounts and make use of them. The opportunity to file a chargeback helps clients to recoup their losses. 

Repayments are a very thing to make shoppers feel confident and safe. However, they serve right only if customers use them adequately. Take a look at why buyers demand their money back. 

Top-5 chargeback reasons

  • Transactions without permissions There are thousands of scammers out there. And when a user spots any signs of fraudulent activity, they should immediately file a bank chargeback. That is the case when merchants aren’t advised to defend the matter of returning money. 
  • Friendly fraud Although a word friendly is mentioned, this kind of chargeback has nothing to do with friendship. Untrustworthy vendors are here and there, but the number of customers who are tempted to grab someone else’s money is skyrocketing as well. They can report scammy transactions when they are authorised. Some have the nerve to say the parcel wasn’t delivered when it was. Due to modern technologies, buyers are turning into criminals, and such cases happen in the banking system more often than ever before. 
  • Seller errors People make mistakes, and merchants aren’t exclusive to that. They can send a wrong item or the right one but of different colour. Things that can be confused vary from one vendor to another. In such situation, a customer should go easy on a seller and ask for their funds back without making a noise about it.
  • Technical issues AI-powered machines can sometimes fail to work correctly. Even the most sophisticated systems may occasionally be on the blink. If a customer has been charged more than once because of some bugs, they are welcome to request a return. Another problem can be when a sum is taken from the debit card even though the transaction is refused. 
  • Defective products Delivery services do their best to bring items safe and sound. However, life is full of unpleasant surprises. Goods may get damaged. And no matter whether it is slight or serious harm, shoppers will ask for refunds. Things can be discussed with courier companies. But in fact, buyers tend to go the easiest way and demand money from sellers.  

Chargeback processing in 5 steps

Once a client is grumpy about their purchase, the best way to go is to communicate with a merchant. Only when a seller is unwilling to do anything about the situation, a shopper can start the ball rolling on a chargeback process. If any scammy activities have been identified in credit cards, a consumer should also immediately get ahold of the bank. No matter the reason for the refund, actions must be taken within 120 days. The deadline may vary, but it is usually around 4 months. 

When the request for repayment has been made, a chargeback process begins, and it looks like that: 

  • A cardholder gets in touch with the issuing bank to demand their money back. At that stage, a provisional credit is given to a shopper. 
  • Then, both acquiring and issuing banks try to iron the problem out. If they fail to reach the agreement, a merchant receives notification said that money should be given back. 
  • A seller has two options: agree to refund or defend the chargeback. To do the latter, they have to send a rebuttal letter supported by evidence. E-store owners are advised to fight back as fast as possible. 
  • Then the issuer bank looks into new evidence and provides both sides with its decision. 
  • If a transaction is turned out to be legitimate, a bank schedules the temporary credit return. Should a customer wins, a seller pays the transaction value coupled with extra fees (read on to find out what additional expenses to expect).

What will chargebacks cost you?

If a consumer does not recognise a payment and demands to reverse it, e-store owners have nothing to do with that. Everyone who has lost funds due to illegal operations is entitled to get their money back. That’s what bank chargebacks were initiated for.

Unfortunately, this form of justice has become a real struggle for merchants. Here is why: customers ask for chargebacks right, left, and the centre with no decent reasons. What’s worse is that they can request refunds to make some extra cash. It's observed that once succeeded, shoppers demand repayments again in 1 month. 

The cost of the refund is higher than just the product price. Merchants have to cover penalty fees brought by banks, which may be up to 40% of the transaction value. If you add fees taken by a payment aggregator and money spent on delivery services and packing, a sum will be twice bigger than the one paid for the purchase.  

Moreover, financial losses are usually accompanied by a threat to your reputation, and they will inevitably cause troubles in your banking account, such as freezing. All those can put your business in jeopardy. 

The moral is: never disregard the importance of disputing unfounded chargebacks. Make sure to reduce the number of hazards towards your business’s bottom line. And remember that banks seldom file chargeback claims against sellers who frequently fight them back. 

How to lessen the number of chargebacks

There is a myriad of causes that trigger bank chargebacks (both legal and illegal). It is in your best interest to prevent money back demands. Your first line of defence must be excellent customer service coupled with top-notch products. Buyers will never file chargebacks if they are satisfied with what’s purchased. Raising the bar of your services and shopping standards is the backbone of your successful business.

By trusting your e-store to the reputable payment aggregator like Tranzzo, you’ll be able to stave unauthorised transactions off. Having an anti-fraud system at its disposal, Tranzzo makes every transaction go through more than 200 risk checks, thereby detecting scam. Thus, chances to be exposed to any hacker attacks are minimised. 

What about customers? Should they take on any responsibility? Yes, they have to bear in mind that requesting money is the last thing to do if they are unhappy with their shopping. Asking for refund can be considered as a justifiable act only when fraudulence takes place in the credit card account. 

But how to make cardholders behave ethically and thoughtfully? Will they magically stop demanding transactional reversals? The sad truth is: they will seek refunds until you provide them with full information about what a chargeback means and when it can be used. Take some time to post the valid reasons and rules for repayments on your website.

Wrap it up

When you understand the chargeback nature, causes and effects, you will be able to cope with it hands down. Nowadays you are spoilt for choice: you can do decent research on this topic or talk to other merchants. Gather all the useful information to know for sure how to prevent refunds. If you’ve already faced chargeback precedents, learn from your mistakes and step up to the plate. Repayments have never been something you can’t overcome.