When a customer buys a product or service, money moves from the customer’s bank account to the seller’s bank account. A chargeback causes the money to be taken back from the seller’s bank account. It is then returned to the customer’s bank account. The credit card transaction is no longer valid.
Businesses can lose a lot of money from chargebacks. Businesses should, therefore, try to avoid receiving chargebacks as much as possible. More information about how to avoid chargebacks is below, including using BinLists.COM to check for fake cards.
Chargebacks started in the 1970s. They protect customers from dishonest sellers and from illegal use of credit cards by criminals.
Chargebacks protect customers against other people using their credit card illegally. If their card is used illegally, they can get their money back.
Businesses don’t want to get chargebacks and are therefore more likely to do everything they can to avoid them. They are, therefore, more likely to provide:
A chargeback can be caused by:
Chargebacks involve a lot of time and cost for the business. Chargebacks should be that last option for customers wanting to get a refund.
The costs to a business include:
The costs to customers include:
If a customer has their identity stolen or someone uses their card without permission, they should contact the bank straight away to report it. The bank might start a chargeback process.
Sometimes a customer might think that their card has been used by someone else. The customer might see a transaction on their account for something that they think they didn’t buy; or they might see a business name that they don’t recognize.
The customer could contact the seller to ask them about the transaction to check if it was a mistake. There might be a simple explanation. For example, the customer might have just forgotten that they bought the item; or the seller might have made a mistake. In these cases, a refund straight into the customer’s account will be arranged much more quickly than a chargeback.
Chargebacks can take between 6 to 12 months to process. Refunds only take a few days to process.
Sometimes, a customer is, for some reason, unhappy with the items they have bought. For example, the customer thinks the items they bought:
In these cases, the customer should first try to contact the business for a refund. A refund will be processed much more quickly than a chargeback.
If the customer decides that they can’t be bothered with getting a refund, they might try to get a chargeback. Instead of going back to the business, they contact their bank. They ask the bank to start a chargeback process, and take the money back from the business’ bank account (see the section on ‘How is a chargeback processed?’).
The customer should be careful about making a chargeback request just because they’re unhappy with the product. If the bank decides that they don’t have a good reason to get the money back, the customers actions could be seen as stealing—‘chargeback fraud’ (see below, ‘What is chargeback fraud?’).
If the business wants to make an argument against the chargeback, they only have a short amount of time to do this. This time is set by the credit card companies (Visa, Mastercard, etc). For Discover, MasterCard and Visa credit cards, the business’ bank has only 45 days to give the credit card company the information about the chargeback. For debit chargebacks, they only have 10 days to give the credit card company this information.
A chargeback management system can be used to help businesses to make the chargeback process easier.
Many banks and financial institutions have some kind of chargeback management system. This can be an online system. This can also be a free service depending on the bank.
Using a chargeback management system that is online is better for the business. It means less paperwork and mailing costs. It also makes communication between the bank and the business easier and quicker.
If the business doesn’t use an online chargeback management system, all of the chargeback paperwork will be done by mail or fax.
The best way for a business to avoid chargebacks is for all employees to be trained properly.
This means that they provide high quality products and services. They offer excellent customer service that is quick and pays attention to the needs of the customer.
This also means that they know how to check credit and debit cards to see whether they are genuine or not.
Employees can check whether credit cards are genuine or not by using the free service at BINLists.COM. Using binlists.com, employees can lookup, validate and verify BIN and IIN numbers of any debit or credit cards.
Other ways of recognising credit/debit cards that might not be genuine can be found at:
Sometimes a customer might ask for a chargeback for reasons that aren’t genuine. If they do this, their action can be considered fraud. Such improper reasons include:
If a customer is not satisfied with the item they bought, they should ask for a refund. This means that they take the item back to the seller. The seller will be able to sell the item again.
If a customer asks for a chargeback instead, they can keep the item. They also, at the same time, still get the money through the chargeback process. They get both the money and the item. The business can’t sell the item again, and they lose the money too.
This is called ‘chargeback fraud’ or ‘friendly fraud’. Chargeback fraud is very common. It can result in large financial losses for many businesses.
It is very important the businesses know that they can, and should, argue against chargebacks (see above—How is a chargeback processed?). When a bank sends the business the paperwork about a chargeback, the business should fill it out and send it back.