Chargeback is a transaction reversal initiated by the cardholder or issuing bank in response to a dispute. It is a method of consumer protection that allows cardholders to recoup their money from transactions that have not gone according to plan. Chargebacks are different than refunds, as refunds are initiated by the merchant, whereas chargebacks can be initiated by either party involved in the transaction.
A chargeback occurs when the customer contacts their issuing bank and disputes an unauthorized transaction, incorrect amount, or unsatisfactory goods/services received. The issuing bank will then launch an investigation into the claim and usually request evidence from both the merchant and customer before deciding how to proceed with the resolution of the dispute. If they view a chargeback as valid, they will reverse the transaction and return funds to their customer’s account.
The process of chargebacks may vary depending on the regulations and laws put in place by different entities such as banks, credit card companies, payment processors or other financial institutions. Typically, merchants are required to pay fees associated with chargebacks while also providing evidence that they were not responsible for any fraudulent activity. Customers also need to provide proof that they were not at fault in order for a chargeback to be successful.
Chargebacks should not be confused with refunds which occur when a merchant voluntarily issues funds back to customers’ accounts due dissatisfaction with goods/services received or due to canceled orders. Refunds are typically initiated directly by merchants without involving third-party entities such as banks or payment processors; however, merchants may still incur fees associated with refunds if certain conditions are met (e.g., if customers use specific payment methods).
In summary, while both terms involve returning funds back to customers’ accounts, there are important distinctions between chargebacks and refunds: chargebacks involve third-party entities such as banks or payment processors while refunds do not; customers must provide evidence of nonresponsibility in order for a chargeback to be successful; merchants are more likely required fees for both types of transactions; and lastly refunds are voluntary whereas chargebacks can only be issued after an investigation has been conducted by issuing banks.
