What is chargeback? Find out how it affects your business

Chargeback refers to refunds that occur when, at the request of a cardholder, the bank requests a refund on your behalf due to your disagreement with any charge that has been performed on it.

Although cards are one of the most secure forms of payment, this refund mechanism has been designed to to further protect customers. Thus, chargeback is available to holders of payment cards issued by Visa and MasterCard.

Chargeback: in which situations is it possible to apply for it?

The number of these returns or chargeback has increased considerably in recent yearsespecially in the wake of the boom in online shopping. The main reasons for this increase are, above all, an increase in credit card fraud; an increase in business-to-business transactions and resale in the e-commerce market; and the introduction of VISA's international chargeback rules.

However, chargeback covers card transactions made at point-of-sale terminals, online transactions, ATM withdrawals, among many others, since the main unauthorized uses of credit cards that can lead to chargeback are: loss or theft of credit cards, and leakage or compromise of card information or numbers.

Enter the most common reasons for requesting a chargeback are located:

• Not receiving the products or services purchased; in some cases because you have been a victim of fraud.
• The products received do not match the description.
• Money for products returned to the seller has not been refunded.
• A payment has been paid twice.
• An error during the transaction.

What is the process to apply for a chargeback?

When a private individual finds himself in one of these situations, he can initiate the chargeback procedure through the bank that issued the card. Alternatively, he can manage the whole process himself with his card.

After make a formal claimThe bank can cancel the defective transaction reported by the customer. And then process the refund.

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If we opt for the option to do it through a bank branch, the customer must submit a formal complaint with the cardholder's personal data, the card number, data on the location of the terminal or information on the defective transaction.

In addition, it is advisable to also include all documents showing that the merchant has not fulfilled the contract and a statement that the customer has tried to contact the merchant to solve the problem himself.

Afterwards, it will be the bank's task to investigate the claim in order to return the amount to the customer. if it succeeds, since the merchant who accepted the payment can provide evidence to prove that he provided the service correctly and fulfilled his contract as a seller. If the merchant fails to do so, the refund to the customer is recognized.

The time period for reporting a claim on a card transaction may vary depending on several factors such as the type of transaction or the reason for requesting a chargeback. However, in most cases, the consumer has 120 calendar days from the date of the transaction. In situations involving foreign transactions, this period may be extended to 180 days.

Once the return has been approved, reimbursement is made within 2 to 5 working days.. But in exceptional circumstances it can take up to 30 days.

However, refund is not always grantedAlthough this is a procedure to protect customers against possible fraud and errors in the payment system, the merchant who has made the charge also has some time to offer his arguments. If these are valid for the bank, the amount may not be refunded to the buyer.

Does the chargeback have any risk for companies?

Chargeback is a very safe mechanism for consumers, but it is also a very effective way for them to can be a major hassle for companies, as the merchant is responsible for handling returns. in case it is accepted by the bank. In fact, when the cardholder requests a chargeback, the credit card company cancels the sales. And, as a rule, the merchant bears the burden of those cancelled sales or payments. But... What can you do if, as a business, you are presented with a chargeback?

When a customer wants to submit a chargeback to his bank, the company that has sold the product in question has the right to oppose this refund if it is not legitimate. To do so, you must provide proof of the legality of the transaction by verifying all the data used in the process and sending it to the bank through which the refund is being requested.

If there is no agreement, an arbitration committee of the credit card company will decide, after examining all the information provided by both parties, who is right.

Simply put, chargebacks are a service offered by payment methods companies to help customers get their money back. It is a policy that benefits shoppers, but it is not a makes it difficult for merchants to do business as they may suffer from fraud, especially in the case of e-commerce.. This hurts the business as they not only lose the money from the transaction but also all the commissions paid to process the sale, as well as the merchandise shipped. 

At Gamco, we have been developing pioneering solutions based on Artificial Intelligence focused on advanced risk management, detection and prevention of fraud in online transactions.. 

Thanks to our AI solutions, we are able to extract knowledge based on historical data of customers and purchases made and detect behavioral patterns that allow us to detect fraudulent actions and alert the means of payment management systems of potential illicit activities.