What are credit card chargebacks?

In today’s connected and mobile business environment, you as a merchant need to ensure that you can easily support your customer’s shopping and purchasing needs. This means you must have a safe, secure, and dynamic ecommerce site. Your customers want to make their purchases online using a fast and simple interface.

This is all well and good but offering this kind of dynamic ecommerce environment does bring with it questions over security, efficiency, fraud, and payment management. We are seeing with the rise in ecommerce that the number of customer credit card chargebacks is on the rise.

Today’s consumers are savvy and have learned how to beat the system. As well, online fraud whereby people are making purchases with stolen credit cards, gift cards, and debit cards is on the rise. This all contributes to a rise in the number of chargebacks, you, the merchant has to deal with.

What is a chargeback?

Chargebacks are a kind of consumer protection, introduced in 1974 in efforts to protect consumers from fraud. Sometimes called a reversal, chargebacks allow a consumer to file a complaint with their credit card’s issuing bank requesting that a charge be reversed.

When the customer makes a complaint to their bank, an investigation is initiated to determine the validity of this claim. What is important to note here is that customers typically contact their credit card company (issuer) rather than contacting you, the merchant directly. This is where and how, fighting credit card chargebacks can become very complicated, time inefficient, and expensive.

What happens when a chargeback is filed?

It’s important for you to understand that fighting a chargeback claim is tedious, time-consuming, labor intensive, and a deep drain on your resources. This is why it’s key that you have an end-to-end solution in place that allows you to be proactive when it comes to dealing with credit card chargebacks.

Let’s take a closer look at the chargeback process:

  1. Your customer has decided the credit card or debit card charge is invalid and contacts their issuing bank to make a complaint.
  2. The customer’s issuing bank begins an investigation into this claim. It’s important to acknowledge here that this customer is also a client/customer of the issuing bank, so the bank wants to keep this customer happy.
  3. If the issuing bank decides the customer’s chargeback claim is invalid, the claim is dismissed and the customer is charged a processing fee.
  4. If the chargeback claim is found to potentially be valid, an investigation is started. This starts with the issuing bank contacting your bank to collect additional information. It is only now in the process that you are involved and contacted.
  5. An investigation process is followed and if your bank decides the chargeback claim is not valid then the claim is cancelled and the customer’s issuing bank is contacted. When this happens, you are finally on the path to recovering your lost funds.
  6. During this entire investigation, you are expected to provide detailed records of the customer’s purchase. This information is used to determine the validity of the claim and to determine if the purchase was in fact a result of a stolen credit card, fraud, or simply a mistaken purchase. These records are critical in your ability to fight the chargeback claim, and as you can imagine it can be a drain on your resources, time, employees, and energy to collect this necessary documentation.

The chargeback process is not a fast one. It is very complicated and involves a great deal of communication between different organizations. It’s important for you to understand that while this is going on, you also need to manage your relationship with this customer.

Now with the age of social media, you don’t want this customer who has made the credit card chargeback claim to be posting on forums, Twitter, Facebook, websites, and review sites about their dissatisfaction with their purchase and your company. This is why it is vitally critical that you be involved in the chargeback process from the very beginning.

But, this early involvement is simply not possible if you’re not using an end-to-end solution that gives you both front-end and back-end protection.

How long is the chargeback process?

The chargeback process can take anywhere from one to six months. As you can appreciate, the longer it takes, the more this process will cost you. It’s also key that you understand that consumers have up to two years after a purchase to file a chargeback complaint. (And, yes, you’ll still need to provide supporting documentation for this two-year old purchase if you want to fight the chargeback.)

Where can I find out more about chargebacks?

We’ve created a deep collection of resources and FAQs on our website to help you learn all you can about chargebacks. Use the Resources section to access a wide-range of articles about chargebacks, fraud, credit card chargebacks, and common chargeback myths. User our FAQs to find answers to common questions. And of course, do contact us to ask us your questions. The Chargebacks.com team is here to help you.