Chargebacks Explained

Chargebacks Explained

Credit card chargebacks happen when a customer, for any number of reasons (ranging from fraudulent use of a card to dissatisfaction with the good or service received), disputes a credit card transaction through her issuing bank.

The chargeback process is designed to increase consumer confidence — it’s very easy for credit card users to dispute charges, while merchants and banks have to do all of the legwork to figure out whether or not a transaction is legitimate.

From a business’s perspective, however, chargebacks can often be a costly hassle. The burden of proof to show that a customer has been rightfully charged falls on the merchant, and when consumers successfully dispute charges, the merchant loses both the product sold and the revenue from that sale.

Even when a dispute is unsuccessful, a merchant’s acquiring bank will withhold payment for any chargebacks until the matter is resolved. Add in the fees charged by banks and processors, and even disputes which turn out in a merchant’s favor can be expensive.

If a merchant has too many chargebacks that they loose, they could also use their merchant account and be placed on Terminated Merchant File (TMF), which means that they may not be able to open another merchant account under their own name.

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