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What are Chargebacks and how can we manage chargeback disputes?

Wednesday, 15 Jun, 2022

Banks' principal method for resolving credit card payment problems is chargebacks. When a consumer did not authorize a charge or is dissatisfied with a product or service, the charge can be challenged by the issuing bank. The chargeback procedure is archaic, and it is regulated by regulations that are frequently applied inconsistently. The system can frustrate both retailers and customers.

Let's look at how chargebacks work, what are chargeback reason codes, and what you can do to avoid them.

What are Chargebacks and how can we manage chargeback disputes

What are Chargebacks and how can we manage chargeback disputes?

1. What are chargebacks?

After a customer successfully disputes an item on their account statement or transaction report, a chargeback is a charge that is returned to a payment card. Chargebacks can happen with debit cards (and the associated bank account) or credit cards. For a variety of reasons, a cardholder may be allowed a chargeback.

Regulation E of the Electronic Fund Transfer Act regulates chargeback reversals for debit cards in the United States. Regulation Z of the Truth in Lending Act applies to chargeback reversals for credit cards.

KEY TAKEAWAYS

  • A chargeback is the amount of money returned to a debit or credit card if a customer disputes a transaction or simply returns an item.
  • Either the merchant or the cardholder's issuing bank can start the chargeback process.
  • When a chargeback happens, the card issuer usually charges the merchant a fee.

The meaning of credit card chargebacks and examples of chargebacks.

The meaning of credit card chargebacks and examples of chargebacks.

1.1 What are credit card chargebacks meaning?

Because it refunds specific cash taken from an account through a past purchase, a credit card chargeback can be considered a refund. It differs from a canceled charge in this regard because it is never fully authorized for settlement. A credit card chargeback, which is focused on charges that have been fully processed and resolved, might take several days to complete due to the fact that they must be reversed through an electronic procedure involving numerous parties.

Charges might be contested for a variety of reasons. A cardholder's card information may have been compromised, a merchant may have charged them for things they never got, a merchant may have duplicated a charge by accident, a technical fault may have caused a mistaken charge, or a merchant may have duplicated a charge by mistake.

1.2 What are the types of chargebacks?

Chargebacks come in a variety of categories.

The three types of chargebacks are criminal fraud, friendly fraud, and merchant error. They all come from diverse backgrounds, and banks will treat them differently.

Merchant error

  • Merchant error

When a chargeback occurs as a result of a merchant error, such as shipping the incorrect goods, providing a damaged or defective product, or failing to deliver the product, the chargeback is known as a merchant error chargeback. This type of dispute can be properly represented occasionally, but the best course of action is to discover and correct the error's primary source.

   

Criminal fraud

  • Criminal fraud

Criminal fraud chargebacks happen when a scammer or identity thief uses a credit card to make an illicit purchase. Businesses should not waste time or resources attempting to fight chargebacks; rather, merchants can reduce chargebacks by installing powerful anti-fraud systems that use a pre-authorization, post-authorization, or combination strategy.

   

Friendly fraud

  • Friendly fraud

Customers who misuse the chargebacks method by reporting lawful transactions as fraudulent in order to receive a refund are referred to as friendly fraud chargebacks. Customers may act in this manner on purpose, by accident, or because they are perplexed.

1.3 How does a chargeback work?

The number of phases in the chargeback process will fluctuate depending on a variety of factors. That being said, here's a quick overview of how it works:

Step 1

Step 1

A chargeback is filed by the cardholder.

By contacting the bank and requesting a refund, the cardholder starts a dispute.

Step 2

Step 2

The issuer examines the situation and assigns a reason code.

The purpose of this code is to explain why the customer is disputing the purchase.

Step 3

Step 3

The complaint is investigated by the issuer.

If the case is found to be valid, funds will be taken from the merchant's account and credited to the cardholder account, which may receive a provisional credit. If the bank believes the lawsuit is unjustified, the disagreement will be dismissed.

Step 04

Step 04

The acquirer is alerted and the chargeback is reviewed.

The acquirer will submit any evidence it possesses to refute the chargeback on the merchant's side. If the bank cannot find such proof, the chargeback will be passed on to the merchant.

Step 05

Step 05

The chargeback is received and reviewed by the merchant.

The merchant must take the loss if the claim is valid. Merchants, on the other hand, who believe they can refute the claim, have the option of resubmitting the chargeback to the issuer.

Step 06

Step 06

After reviewing the information, the issuer makes a decision.

If the merchant's evidence refutes the cardholder's claim, shoppers that were taken from the merchant as a result of the chargeback will be returned to the merchant. However, the merchant will not be reimbursed for any chargeback fees or administrative costs.

1.4 What is the impact of chargebacks on businesses?

When you first establish a business, one of the first signs that you're ready to take the next step is when you begin accepting credit card payments. Setting up a payment processor and acquiring a bank account is a significant investment in your business, but accepting the payment methods that your clients prefer can allow you to reach considerably more shoppers.

You can accept credit card payments and compete on an equal basis with more established merchants after you have a professional merchant account set up.

Payment card transactions are sometimes more sophisticated than they look to the client, but no component of the payment card ecosystem causes retailers more grief than the dreaded chargeback. They play a crucial role in restoring customer confidence in payment card systems by providing protection from credit card criminals and unscrupulous merchants.

The disadvantage is that unscrupulous customers can misuse the chargeback process, and when retailers are penalized with bogus chargebacks, they bear the burden of evidence in convincing the cardholder's bank to reverse the chargeback. Merchants must take the time to establish and implement a plan to prevent fraud and disputes in order to protect themselves from the serious implications of uncontested chargebacks.

The impact of chargebacks on businesses

The impact of chargebacks on businesses

1.5 What are the consequences of chargebacks on businesses?

Costs and Consequences of Chargebacks for Merchants. Chargebacks have both short and long-term consequences.

  • The business is charged a fee ranging from $20 to $100 per transaction when a customer files a chargeback. The merchant will still be responsible for fees and administrative costs even if the chargeback is later terminated. The merchant loses the income as well as any future potential profit if the customer files a chargeback and just keeps the goods.
  • Excessive fines (in the range of $10,000) will be charged against the business if monthly chargeback rates surpass a predetermined chargeback threshold. If chargeback rates continue to exceed the allowed threshold, the merchant's account may be terminated by the acquiring bank.
  • If a merchant's account is closed, the company will be added to the MATCH list. The company has been blacklisted, and it will be unable to open a new bank account for at least five years, even with a different service provider. If they can get a bank account at all, their only alternative will be to open a high-risk merchant account.
  • While retailers have the authority to challenge unauthorized chargebacks, doing so is more complex than it appears. It takes a lot of time and effort to craft an effective dispute. DIY chargeback answers are unusual; according to our research, the average net recovery percentage for chargebacks is only 12%.

2. Why does chargeback for customers occur?

Processing and contesting chargebacks take up the majority of the Disputes Management interface. The following are some of the most common reasons for chargebacks.

2.1 Errors in point of sale processing

  • Account number is incorrect

The account number on the original transaction receipt is different from the account number in the record deposited for payment, according to the card issuer. (For instance, if you typed the erroneous account number for that transaction due to a data entry error.)

  • Processing that is duplicated

The identical transaction is received twice (or more) by the card issuer, and the shopper's account is charged twice (or more). This signifies that the same transaction is being charged twice (or more) to the shopper.

2.2 Customer disagreements

  • Customer claims services are not available.

A shopper sends a written complaint to the card issuer. According to the letter, a service you provide was billed but never delivered.

  • A recurring transaction has been canceled

The shopper notifies the card issuer that you (the merchant) were requested to terminate a recurring transaction (for example, a monthly subscription), yet you continued to charge the shopper. Or the transaction value exceeded the agreed-upon limit, or you failed to notify the shopper before processing each repeating transaction.

  • Merchandise/service did not meet expectations

The shopper complains to the card issuer that the goods or services received were not the same as those depicted and promoted on your website or in other marketing and sales promotion materials. The customer attempted to return the item or cancel the service. If you had previously given the services, the shopper may have attempted to address the dispute with you but was unable.

  • Products that are defective

The shopper writes to the card issuer, claiming that the goods received were damaged, faulty, or unfit for the purpose for which it was sold, and that the shopper tried to return the defective merchandise.

  • The customer complains that the goods were not delivered.

The customer alleges that the product did not come or that the order was canceled because the merchandise did not arrive by the specified delivery date in a letter to the card issuer.

2.3 Fraud, or the possibility of fraud.

  • Card-not-present transactions that are fraudulent

The customer complains to the card issuer that a transaction on his or her billing statement was neither authorized nor participated in by him or her.

  • Card-present transactions that are fraudulent

This is a less common sort of fraud than card-not-present fraud. It primarily involves the use of stolen, out-of-date, or (rarely) phony cards.

3. What happens in a chargeback dispute?

Chargebacks are a type of consumer protection measure that allows customers to obtain money back for fraudulent charges or purchases that don't meet their expectations by filing a dispute with their credit card company.

You may want to dispute a transaction on your credit card account if it doesn't look right or if you're having problems with a recent order. In most cases, you'll need to fight a transaction chargeback.

The first step in resolving a problem should be to contact the retailer directly and request a chargeback. You may need to return the item to the store along with a copy of your receipt, or you may be able to contact customer service and request a refund online.

For example, I just received a PAPMall digital product that disappointed me. After it was unwrapped, the object said, "Try me out." I began the dispute by contacting PAPMall customer service and describing the problem. Shortly after, I received a reimbursement for the goods; however, this is not always the case. If PAPMall had refused to credit the purchase, I would have filed a dispute with my credit card company.

If requesting a refund from the merchant fails, chargebacks should be the next step. You file a chargeback with your credit card company in the hopes of having the transaction reversed.

Many credit card companies allow you to dispute purchases via the phone, by letter, or online. You might be able to file a dispute through your card issuer's mobile app as well. Supporting papers, such as copies of a receipt, invoice, contract, and any communications you had with the merchant, may be required when filing a chargeback. Expect the dispute to persist for up to 90 days or two billing cycles, whichever comes first.

What happens in a chargeback dispute?

What happens in a chargeback dispute?

3.1 What is the process for a chargeback dispute?

When a cardholder challenges a charge, fraudulent conduct is suspected, or payment did not conform with the rules and regulations established by a payment brand, such as Visa®, MasterCard®, or a debit network, a chargeback occurs during the dispute process. During the dispute procedure, the chargeback event describes the actual reversal of funds.

Step 1:

Step 1

The cardholder calls the card's issuer (the bank that backs the card), explains the situation, and requests a refund.

Step 2:

Step 2

The issuer investigates the claim's accuracy.

The cardholder is responsible for the payment if the claim is deemed unjustified, and the settlement funds are not affected. The issuer starts the dispute process if the cardholder looks to have a valid claim.

Step 3:

Step 3

During the dispute resolution procedure

The issuer credits the cardholder, the payment brand transfers cashback to the card issuer, and PayCEC debits funds from your settlement account to cover the dispute while notifying the payment brand (e.g., Visa®, Mastercard®, or the debit network).

PayCEC will submit documents regarding the challenged charge, and a quick response is required. By logging onto PayCEC , you can view your complaints.

3.2 Chargeback Reason Codes

A chargeback reason code is a two- to four-digit alphanumeric code supplied by the issuing bank in a chargeback to identify the cause of the dispute. Each major credit card company, such as Visa, Mastercard, and others, has its own system of reason codes. Reason codes are significant because they can assist merchants to resolve reoccurring chargeback triggers and detect frivolous chargebacks that they will have to dispute.

There are many different card brands available all around the world. Some are specialized in specific areas or countries, while others are geared toward specific industries, such as travel and entertainment cards, and each card scheme has its own set of chargeback reason codes. Visa, Mastercard, American Express, Discover and JCB are the four most extensively used credit cards in North America and Europe. You can learn more the difference between Visa Mastercard Discover and American express (Amex) with below charge reason codes

To help illustrate the similarities and variations between the dispute reason codes of different card networks, we've included a breakdown of the four primary US-based schemes:

  • Visa Chargeback Reason Codes:

When Visa Claims Resolution was launched, they redesigned their entire reason code system, introducing a new list divided into four categories: processing errors, authorization errors, fraud, and customer disputes. Each category has a two-digit number, and the specific reason code is a subset of that group with a decimal place.

Reason Code Reason Description
10.1 EMV Liability Shift Counterfeit Fraud The cardholder is claiming that they did not authorize or participate in a transaction that you processed. The terminal was not EMV compliant.
10.2 EMV Liability Shift Non-Counterfeit Fraud The cardholder is claiming that they did not authorize or participate in a transaction that you processed. The terminal was not EMV compliant.
10.3 Other Fraud-Card Present Environment The cardholder is claiming that they did not authorize or participate in a key-entered or unattended transaction conducted in a card-present environment.
10.4 Other Fraud-Card Absent Environment The cardholder did not authorize or participate in a transaction conducted in a card-absent environment (such as internet, mail-order, phone-order, etc.).
10.5 Visa Fraud Monitoring Program Visa notified the cardholder's bank that the Visa Fraud Monitoring Program (VFMP) identified the transaction and the cardholder's bank has not successfully disputed the transaction under another dispute condition.
  • Mastercard Chargeback Reason Codes:

In 2016, Mastercard, like Visa, redesigned its own chargeback reason code system, compressing the list in an attempt to modernize it. A four-digit reason code beginning with the 48XX prefix is assigned to all active Mastercard chargebacks in 2018.

Reason Code Reason Description
4837 No Cardholder Authorization The cardholder states that they, nor anyone authorized by them, engaged in the transaction.
4840 Fraudulent Processing of Transactions The cardholder claims that a fraudulent purchase was made while the card was in the cardholder's possession at the time of the transaction.
4849 Questionable merchant activity The acquirer processed a transaction that was later listed in a Mastercard Global Security Bulletin for violating GMAP, QMAP, or reported to SAFE.
4863 Cardholder does not recognize – Potential Fraud The cardholder claims that they do not recognize the transaction and states that they did not authorize the charge to their credit card.
4870 Chip Liability Shift The cardholder claims they were in possession of a valid card on the date of transaction but they did not authorize or participate in the transaction.
4871 Chip/PIN Liability Shift The cardholder claims they were not in possession of a valid card on the date of transaction and they did not authorize or participate in the transaction.
4999 Domestic Chargeback Dispute (Europe region only) The issuer can supply this message for a domestic chargeback that doesn't meet another chargeback categorization.
  • American Express Chargeback Reason Codes:

The American Express reason code system is organized into the same four subheadings as Visa's, plus a fifth category called "Miscellaneous." The alphanumeric code begins with a letter to identify the section, followed by a number to identify the precise reason; for example, "No Cardmember Authorization" is reason code F14; "F" stands for fraud category, and "14" stands for reason.

You will receive reason codes from one of these columns, depending on the region in which you have set up American Express:

North America Reason Code: Canada and the United States of America

All other countries (reason code)

Reason Code Reason Code North-America Reason Description
4540 F29 Card Not Present (fraud) The cardholder denies participation in a mail; telephone or internet-type transaction.
4763 FR2 Full recourse A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4798 F30 Fraud Liability Shift – Counterfeit A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4799 F31 Fraud Liability Shift – Lost/Stolen/
Non-Received
A cardholder is claiming that they did not authorize or participate in a transaction that you processed.
4534 F24 No Card Member Authorization The cardholder denies participation in the charge submitted and you have failed to provide proof that the cardholder participated in the charge.
- FR4 Placed in Immediate Chargeback Program The cardholder has disputed the charge and you have been placed in the Immediate Chargeback Program.
- FR6 Placed in the Partial Immediate Chargeback Program The cardholder has disputed the charge and you have been placed in the Partial Immediate Chargeback Program.
  • Discover Chargeback Reason Codes:

Unlike the other three card methods, Discover's reason code system is primarily alphabetical. Some of these reason codes are easy to understand, such as "DP," which stands for "Duplicate Processing." Others, like "RM" for "Quality Discrepancy," are less evident.

Reason Code Reason Description
4752 Does not Recognize The cardholder claims that they do not recognize the transaction and states that they did not authorize the charge to their credit card.
4866 Fraud Chip Card Counterfeit Transaction A cardholder is claiming that they did not authorize or participate in a transaction that you processed.
4867 Fraud Chip Card and PIN Transaction A cardholder is claiming that they did not authorize or participate in a transaction that you processed.
7010 Fraud Card Present Transaction A cardholder is claiming that they did not authorize or participate in a key-entered or unattended transaction conducted in a card-present environment.
7030 Fraud Card Not Present Transaction The cardholder did not authorize or participate in a transaction conducted in a card-absent environment (such as internet, mail-order, phone-order, etc.).

To learn more other Chargeback Reason Codes, you can view here.

4. How can merchants prevent and manage chargebacks?

The truth is that, in most chargeback disputes, banks prefer the cardholder over the business owner. This is why it's critical for businesses to have well-documented purchases and transactions that follow the card networks' standards to the letter.

To avoid chargebacks and time-consuming inquiries, follow these general guidelines:

① Before you fulfill any dubious requests, look into them.

② Customers should be informed about your store's policies upfront.

③ Make sure your product or service photographs and descriptions are clear and accurate.

④ Make your return policy clear and easy to find on your website.

⑤ Ensure that the content on your billing statements is easily recognizable by your clients.

⑥ Use your store's or domain's name so that customers may recognize it on their credit card statements.

⑦ Send e-receipts to your consumers when they pay to remind them of what they paid for.

⑧ Ensure that refunds are given as soon as feasible.

⑨ If a double charge occurs by accident, immediately refund the second charge and call your customer to explain what happened.

⑩ If a customer has a complaint, respond as soon as possible.

⑪ Consider only shipping products to orders that pass an AVS check if you're shipping physical goods to the United States, the United Kingdom, or Canada. Before sending to an address that fails an AVS check, you could potentially contact the consumer.

⑫ After receiving payment for an order, ship things as quickly as possible.

⑬ Estimate shipping and delivery dates to the best of your ability.

⑭ If your shipment is delayed, call your customer and explain what's going on with their order.

⑮ Respond immediately to your consumers' needs and repair any products that are defective or damaged.

⑯ Add a subscription cancellation policy to your store if you offer subscription-based services.

⑰ When a consumer requests chargebacks, cancel their subscription right away and send them an email confirming the cancellation.

⑱ Make it obvious on the sign-up page for your subscriptions that your consumers are committing to a recurring charge and email them a reminder before each transaction.

5. Where to ask for help when business clients cope with chargebacks?

When buyers and sellers are unable to reach an agreement, we can assist them in finding a mutually acceptable solution. We'll hold the transaction's value until the matter is resolved once a buyer enters the dispute resolution process. The issue might be escalated to a claim if the buyer and seller are unable to reach an agreement. We'll intervene at that time to determine the issue's conclusion. The following is how it works:

Step 1: Notify the other third parties of the dispute.

If a buyer files a disagreement, we'll send you an email. We'll then put a temporary hold on all money involved in the transaction.

Step 2: Give an answer

Examine the disagreement and respond with an explanation of what occurred. Respond swiftly and offer suggestions for resolving the conflict.

  • If a customer alleges that a purchase was made without their permission, investigate the issue and respond within 10 days.
  • You can simply refund the payment and show us proof (or explain why you haven't shipped) if you haven't shipped the order yet.
  • If you're a PAPMall seller with eligible transactions, you might be eligible for our Seller Protection. You can examine our policies in the PayCEC Merchant Agreement to learn more about transaction protection and eligibility.
  • If your transaction is eligible for Seller Protection, it will be indicated on the transaction details page.

Step 3: Figure it out

You and your buyer have 20 days to resolve the dispute after it has been opened. In the vast majority of circumstances, this is all that is required. Once you've resolved the issue, the buyer closes the case. When disagreements cannot be addressed, any side has the option of escalating the dispute to a claim.

PayCEC created a User-friendly merchant dashboard interface to assist businesses and customers in receiving the best possible experience while also protecting them from scammers.

With the PayCEC payment gateway, merchants can quickly set up their online store and begin accepting online card payments from clients. To set up your payment platform, follow the instructions below:

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About us

PayCEC was established in response to the growing need for businesses to accept online payments more quickly and easily. In the new media era, our payment flow has evolved to work seamlessly and effectively across all platforms and devices. We pride ourselves on combining superior technology with first-class customer service.

PayCEC is a truly global payments platform that not only allows customers to get paid but also withdraws funds to their Business accounts in various currencies.

We have created an open and secure payments ecosystem where people and businesses choose to securely transact with each other online and on mobile devices.

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Frequently Asked Questions

Chargebacks are not the same as for refunds, however, they can both result in a credit for a failed order or a fraudulent charge on your account. As a result, you may file a chargeback with your credit card company to dispute the charge.

When you have charged a payer and need to cancel the payment and return the funds to the payer, you must issue a refund. The monies will be restored to the original payment method (credit card, bank account) used by the payer to make the payment.

Within nine various themes, let's take a deeper look at some of the contrasts between chargebacks and refunds.

  REFUND CHARGEBACK
COMMUNICATION You and your customer work together to identify a solution that benefits you both. Your customer bypasses you and discusses the problem with the bank instead.
CLARITY Your customer tells you exactly what’s wrong so you can solve the underlying issue. You have to make adjustments based on assumptions that may or may not be accurate.
REVENUE LOSS You are aware of the upcoming revenue loss and can plan for it. Funds are forcibly removed from your account without any warning.
MERCHANDISE The customer may be willing to return the merchandise so you can try to sell it again. You can’t ask the customer to return the merchandise since you’ve been omitted from the conversation.
REPUTATION Refund counts are monitored, but they are a relatively low indicator of risk. Chargebacks are meticulously scrutinized, and penalties are quickly issued if activity increases.
FEES You probably won’t be charged a refund fee. Chargeback fees are common and expensive.
RESOLUTION From beginning to end, refunds are usually completed within a week or less. If a case progresses through all five stages of the chargeback process, it can take months to reach a final verdict.
TIME Refunds are usually quick and easy to execute. Chargeback management is a time-consuming process.
EXPERTISE You need very few skills or insights to issue a refund. You need extensive

No, chargebacks are legal. Chargebacks are a voluntarily granted right to credit and debit card users by card system providers like Mastercard and Visa. Unlike other consumer protections under the Consumer Credit Act, a chargeback is not a statutory legal right.

Refund

You can contact a retailer for a refund over the phone or in person if they provide it. Most online services have a form for requesting a refund. Forms are usually simple and only demand you to fill in a few details, such as your name, phone number, and email address, as well as the reason for your refund request.

Chargeback

The fee will be paid back to the issuing bank if the buyer contacts the seller but does not obtain a response or the seller refuses to offer a chargeback.

A chargeback is a reversal of payment. It is the amount that has been moved from the merchant's (your) bank account to the cardholder's (your customer's) bank account as a result of a verified claim.

Chargebacks, fortunately, will not have a negative impact on your company's credit score. However, if you have a large number of them, they may have an impact on your merchant account. Higher processing fees and/or the loss of merchant accounts may result as a result of this.

If a chargeback is determined to be friendly fraud by the bank, the cardholder may be penalized or their account may be canceled. The cardholder's credit score may worsen if their bank account is canceled due to chargeback abuse.

In some circumstances, Merchants might raise their pricing to compensate for chargeback fraud, which damages all consumers.

You have up to 120 days after the purchase to file a chargeback claim, but you should not file one before you've tried to secure a refund from the vendor directly.

You must contact your Debit card / Credit card company or your issuing bank and inform them that you wish to file a claim for reimbursement. Your card provider will determine the best course of action for your claim, whether chargeback or Section 75, based on the specifics of your claim.

Depending on the merchant's agreement with its acquirer, chargeback fees range from $20 to $100. However, when accounting for numerous hidden charges, corporations frequently lose more than twice the transaction amount for each chargeback.

We have a few more tricks up our sleeves if the corporation denies your refund request after you've done your research, taken the proper action, and given it you all.

If getting a refund doesn't work out, you can file a chargeback. What is a chargeback, and how does it work? When you call your bank instead of the vendor to get your money back, this is what occurs. The bank investigates the causes for your chargeback and contacts the vendor on your behalf. Things become more tricky now that a third party is involved. The corporation, your bank, and you are involved in a lengthy back-and-forth that can last up to 90 days.

You should keep in mind that a chargeback is not required for every product or service, so you might be wasting your time. That's why DoNotPay's chargeback process is simple and quick—we'll do everything we can to get your hard-earned money back.

A chargeback normally has no effect on your credit. The act of making a chargeback for a lawful reason against a firm will have no impact on your credit score. A dispute note may be added to your credit report by the issuer, but this does not have a negative impact on your credit.

If getting a refund from the retailer doesn't work, file a chargeback with your credit card company. Many credit card companies allow you to dispute purchases via the phone, by letter, or online. You might be able to file a dispute through your card issuer's mobile app as well.

Card refund can be another word for a chargeback.

Here's a list of similar words from our thesaurus that you can use instead:

  • Card refund
  • Recompense
  • Refund
  • Reimbursement
  • Remuneration
  • Repayment

When a cardholder disputes a merchant charge, a chargeback occurs. The value of the transaction is subsequently debited from the merchant's account by the issuing bank. Even if a chargeback is reversed, the issuer will charge the merchant a fee and the merchant may be subject to extra fines and penalties.

When vendors fail to achieve previously agreed-upon service criteria, chargebacks occur in the supply chain. This could be anything from the timely provision of vital shipment information to inadequate packaging or inaccurate labeling when the products are delivered.

Vendor chargebacks happen in the retail industry when brands fail to meet scorecard requirements. Out-of-compliance shipments waste time and money, and they can lead to sales losses (out-of-stocks). Retailers use financial adjustments against invoices to make up for lost revenue and time.

Merchants can dispute chargebacks by producing a mail/letter that explains their case and includes strong proof to back it up. This is referred to as the "representation" process. The issuing bank will examine the situation and make a decision.

The opposite of chargeback can be charge, fee, transaction, or payment.

When a cardholder doubts a transaction and asks their card-issuing bank to reverse it, this is referred to as a chargeback in payment.

A Payment Transaction is a placement, transfer, or withdrawal of monies initiated by the Payer or Payee.

A chargeback in banking is a transaction in which monies are transferred from the merchant's account to the customer's account by the issuing bank. When a customer escalates a dispute with the merchant, a chargeback is begun.

Unfortunately, the answer is no in the vast majority of circumstances. Not at first, at least. The first thing you should do is figure out why the bank is holding you responsible for the expenses. Have you failed to take reasonable precautions to safeguard your identity and account? This might be used to circumvent the bank's zero-liability policy. For example, if you were in a coffee shop and walked away from the table with your computer open and your banking information opened up, this may be considered neglect. In that circumstances, the bank may have a good reason to hold you responsible for the charges.

Consumers can call their issuer to challenge false charges on their bills. This is a fast procedure in which the issuer cancels the credit card in question and replaces it with a new one. You also have the option of disputing a credit card charge for an item you freely purchased.

You must normally request a refund within 30 to 60 days, with certain credit cards allowing up to 120 days for a chargeback. Make sure you understand the difference between refunds and chargebacks before proceeding. The time limit set by the companies can range from 20 to 45 days.

As a merchant, you must undertake your own investigation into the fundamental reasons of your chargebacks in order to combat and prevent them in the future. We discovered that the reasons for this fall into one of three categories: true fraud, friendly fraud, or merchant error.

  • Fraudulent activity

Criminal fraud chargebacks occur when a scammer or identity thief uses a credit card to make an illicit purchase. Merchants should not waste time or money disputing chargebacks; rather, merchants can reduce chargebacks by installing powerful antifraud systems that use a pre-authorization, post-authorization, or combination strategy.

  • Error by the merchant

When a chargeback occurs as a result of a merchant error, such as shipping the incorrect goods, providing a damaged or defective product, or failing to deliver the product, the chargeback is known as a merchant error chargeback. This type of dispute can be properly represented on occasion, but the best course of action is to discover and correct the error's primary source.

  • Friendly deception

Customers who misuse the chargebacks method by reporting lawful transactions as fraudulent in order to receive a refund are referred to as friendly fraud chargebacks. Customers may act in this manner on purpose, by accident, or because they are perplexed.

When you should request a chargeback:

A chargeback can be requested in a variety of circumstances, include:

  • Fraud or unauthorized charges on your account: If you don't recognize a transaction and believe it was made fraudulently.
  • Undeliverable packages include: It's possible that you'll receive notification that an item was delivered, but it wasn't.
  • Items that are damaged or defective: If an item arrived damaged or incomplete.
  • Charges on your account that are incorrect: The price of the item you bought was not the same as what you were charged (this happens most often at local businesses that enter prices manually).

After a shopper raises an issue, it passes through several steps. It's critical to understand how the dispute process works before defending a case.

The following steps can be taken to start the process:

  • - Notification of Fraud (NOF) - PayCEC sends the equivalent of a Visa and Mastercard SAFE (System to Avoid Fraud Effectively) report to warn you of fraud activity. There is no dispute, and no funds have been taken from your account. If there is no 3D Secure liability shift, this transaction may become a chargeback.
  • Actively review the NOF and offer refunds as soon as possible (to avoid a chargeback).
  • The shopper must be stopped.
  • If at all feasible, halt the transportation of goods.
  • - Request for Information (RFI) - The issuer asks for more details about the transaction. At this time, no funds are being taken from your account. If you do not react to the RFI within a reasonable time, a chargeback may occur, and funds may be removed from your account.
  • Provide the issuer with the requested transactional information.
  • - Chargeback Notification (NoC) - The issuer has launched a chargeback, which can be disputed. The NOC can happen after an RFI or just after the payment status is changed to Settled or Refunded, skipping the RFI process. The chargeback debit normally happens within a few days of receiving the NOC.
  • PayCEC will automatically fight chargebacks that don't require your involvement, such as fraud chargebacks with a liability shift. You must upload your defense papers to defend a chargeback that cannot be automatically defended. This can be done in your Customer Area or through the Disputes API.

The dispute then progresses through the following stages:

1. The First Chargeback

2. Data Provided

3. Reverse Chargeback

4. Pre-arbitration consultations (Only Visa, Mastercard, Discover, Mastercard)

5. The Second Chargeback

When a merchant believes the transactions are valid or has already granted a refund, he or she will make a representation, or resubmit the transaction. If the cardholder and merchant (and their respective banks) cannot agree, either party can seek arbitration from the card network, which will make a final decision. Arbitration occurs only after the transaction has been represented and the customer has filed a chargeback.

A chargeback reversal occurs when the issuing bank decides to reverse the chargeback and restore the funds to the merchant after reviewing the evidence.

An issuing bank's acknowledgement that a transaction was lawful and that the cardholder's chargeback claim was invalid is known as a chargeback reversal. The bank will return the disputed funds if a merchant wins a chargeback reversal.

The average chargeback to transaction ratio is 0.60 percent across all industries. This means that 6 out of 1000 transactions will result in a chargeback. The chargeback rate in the retail and travel industries is around 0.50 percent. Chargeback ratios for merchants who sell physical goods are often less than 0.5 percent. 

Individual chargeback counts in 2021 ranged from 23 per year to 77,331. Sales ranged from $19,000 to $379 million per year. 81 million transactions, 1.3 million chargebacks, 658,000 prevention alerts, and 206,000 order validation instances were used to create the statistics for 2021.

You contact your credit card issuer and file a dispute to start a chargeback. You'll identify the transaction you're disputing and explain why you're doing so. This dispute information is given to the merchant's card processor, who then sends it to the merchant with whom you're dealing.

The answer is no if you have been a victim of fraud. The case could be proven with the help of a lawyer.

Customers who lie in obtaining a chargeback are acting in fraudulent behavior. A person who is convicted of fraud may receive a prison sentence, depending on the circumstances. Customers who abuse chargebacks can be taken to court by merchants, and most countries will seek criminal charges against them.

It is possible. The bank may reject to launch a dispute if the cardholder does not make a persuasive argument to their bank or does not have a valid justification for seeking a chargeback. Chargebacks can also be disputed by providing evidence.

Visa chargeback reason codes

Fraud

Reason Code Reason Description
10.1 EMV Liability Shift Counterfeit Fraud The cardholder is claiming that they did not authorise or participate in a transaction that you processed. The terminal was not EMV compliant.
10.2 EMV Liability Shift Non-Counterfeit Fraud The cardholder is claiming that they did not authorise or participate in a transaction that you processed. The terminal was not EMV compliant.
10.3 Other Fraud-Card Present Environment The cardholder is claiming that they did not authorise or participate in a key-entered or unattended transaction conducted in a card-present environment.
10.4 Other Fraud-Card Absent Environment The cardholder did not authorise or participate in a transaction conducted in a card-absent environment (such as internet, mail-order, phone-order, etc.).
10.5 Visa Fraud Monitoring Program Visa notified the cardholder's bank that the Visa Fraud Monitoring Program (VFMP) identified the transaction and the cardholder's bank has not successfully disputed the transaction under another dispute condition.

Authorization

Reason Code Reason Description
11.1 Card Recovery Bulletin The transaction was below the your floor limit and was not authorised.
11.2 Declined Authorization An Authorization Request was declined.
11.3 No Authorization The payment could not be authorised.

Processing Errors

Reason Code Reason Description
12.1 Late Presentment The transaction was not sent to Visa within the timeframe required.
12.2 Incorrect Transaction Code A cardholder claims the converted amount of charge on an international transaction is incorrect.
12.3 Incorrect Currency You sent a transaction that was processed with an incorrect currency code. Often the cardholder was not advised or did not agree that Dynamic Currency Conversion (DCC) would occur.
12.4 Incorrect Account Number You either processed the transaction to an incorrect account number or did not authorise the transaction and it was processed to an account number not on the issuer's master file.
12.5 Incorrect Amount The cardholder claims that the amount they agreed to pay differs from the amount charged.
12.6 Duplicate Processing/Paid by Other Means The cardholder claims that a single transaction was processed more than once or the cardholder claims that they paid for the merchandise or service by other means (such as cash, check, other card, etc.).
12.7 Invalid Data An authorization was obtained using invalid or incorrect data.

Consumer disputes

Reason Code Reason Description
13.1 Merchandise/Services Not Received The cardholder claims that merchandise or services that they ordered were not received or that the cardholder canceled the order as the result of not receiving the merchandise or services by the expected delivery date (or merchandise was unavailable for pick-up).
13.2 Canceled Recurring A recurring transaction was processed after it was canceled or that the cardholder's account was closed.
13.3 Not as Described or Defective Merchandise/Services The cardholder claims the goods were not as described or disputes the quality of the merchandise or services.
13.4 Counterfeit Merchandise The merchandise was identified as counterfeit by a third party.
13.5 Misrepresentation The cardholder's bank received a notice from the cardholder claiming that the terms of the sale were misrepresented.
13.6 Credit not Processed The cardholder's bank received a notice from the cardholder claiming that they received a credit or voided transaction receipt that has not been processed.
13.7 Canceled Merchandise/Services The cardholder's bank received a notice from the cardholder stating that they returned merchandise or canceled services, but the credit has not appeared on the cardholder's Visa statement.
13.8 Original Credit Transaction Not Accepted The original credit was not accepted.

Mastercard chargeback reason codes

Fraud

Reason Code Reason Description
4837 No Cardholder Authorization The cardholder states that they, nor anyone authorised by them, engaged in the transaction.
4840 Fraudulent Processing of Transactions The cardholder claims that a fraudulent purchase was made while the card was in the cardholder's possession at the time of the transaction.
4849 Questionable merchant activity The acquirer processed a transaction that was later was listed in a Mastercard Global Security Bulletin for violating GMAP, QMAP, or reported to SAFE.
4863 Cardholder does not recognize – Potential Fraud The cardholder claims that they do not recognize the transaction and states that they did not authorise the charge to their credit card.
4870 Chip Liability Shift The cardholder claims they were in possession of a valid card on the date of transaction but they did not authorise or participate in the transaction.
4871 Chip/PIN Liability Shift The cardholder claims they were not in possession of a valid card on the date of transaction and they did not authorise or participate in the transaction.
4999 Domestic Chargeback Dispute (Europe region only) The issuer can supply this message for a domestic chargeback that doesn't meet another chargeback categorization.

Authorization

Reason Code Reason Description
4835 Card Not Valid or Expired A transaction completed with an expired card.
4807 Warning Bulletin File The payment could not be authorised.
4808 Requested /Required Authorization not obtained The payment could not be authorised.
4812 Account Number Not on File Account number does not correspond to the account numbers the issuer has on file for this cardholder.

Processing Errors

Following the Mastercard dispute guidelines, processing error chargebacks are filed under reason code 4834 - Point of Interaction Error. This reason code covers the following scenarios:

Reason Code Description
4834 The cardholder paid twice for the same transaction using two different forms of payment
4834 The cardholder’s account has been debited more than once for the same transaction using the same form of payment
4834 The cardholder was billed an incorrect amount
4834 Cash was not properly dispensed by an ATM
4834 The cardholder’s account has been debited more than once for the same ATM transaction
4834 The cardholder was billed for loss, theft, or damage in the same transaction as the underlying initial service
4834 A dispute regarding Point of Interaction Currency Conversion (Dynamic Currency Conversion)
4834 The cardholder was billed an unreasonable amount (intra-EEA Transactions, domestic transactions in EEA countries, transactions between an EEA country and Gibraltar or the UK, Gibraltar domestic transactions, and UK domestic transactions)
4834 The cardholder paid an improper merchant surcharge (intra-European and inter-European transactions only)
4834 The merchant processed a credit (instead of a reversal) to correct an error which resulted in the cardholder experiencing a currency exchange loss
4834 The acquirer presented a transaction past the applicable time frame

The following reason codes can still be used, but will disappear in the future:

Reason Code Reason Description
4831 Transaction amount differs The cardholder claims that the amount they agreed to pay differs from the amount charged.
4842 Late Presentment The transaction was not sent to Mastercard within the timeframe required.
4846 Correct Transaction Currency Code not provided A cardholder claims the converted amount of charge on an international transaction is incorrect.
4850 Credit Posted as a Purchase When an account is posted a debit in place of a credit by mistake.

Consumer disputes

Following the Mastercard dispute guidelines, consumer dispute chargebacks are filed under reason code 4853 - Cardholder Dispute. This reason code covers the following scenarios:

Reason Code Description
4853 Services not provided/Merchandise not received.
4853 Canceled recurring transaction.
4853 Goods not as described/defective.
4853 Counterfeit merchandise.
4853 Credit not processed.
4853 Addendum dispute or “no-show” hotel charge was billed.
4853 Purchase transaction did not complete.
4853 Credit posted as a purchase.

The following reason codes can still be used, but will disappear in the future:

Reason Code Reason Description
4841 Cancelled Recurring Transaction A recurring transaction was processed after it was canceled or that the cardholder's account was closed.
4854 Not Elsewhere Classified (U.S. region only) The cardholder claims they are unhappy with the goods or services provided and that they have been unable to resolve the situation.
4855 Non receipt of merchandise The cardholder claims that merchandise or services that they ordered were not received or that the cardholder canceled the order as the result of not receiving the merchandise or services by the expected delivery date (or merchandise was unavailable for pick-up).
4860 Credit not Processed The cardholder's bank received a notice from the cardholder claiming that they received a credit or voided transaction receipt that has not been processed.
6305 Cardholder does not agree with amount billed The cardholder claims that the amount they agreed to pay differs from the amount charged.

American Express chargeback reason codes

Based on the region in which you have set up American Express, you will receive reason codes from one of these columns:

  • Reason Code North-America: Canada and United States of America

  • Reason Code: All other countries

Fraud

Reason Code Reason Code North-America Reason Description
4540 F29 Card Not Present (fraud) The cardholder denies participation in a mail; telephone or internet-type transaction.
4763 FR2 Full recourse A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4798 F30 Fraud Liability Shift – Counterfeit A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4799 F31 Fraud Liability Shift – Lost/Stolen/Non-Received A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4534 F24 No Card Member Authorization The cardholder denies participation in the charge submitted and you have failed to provide proof that the cardholder participated in the charge.
- FR4 Placed in Immediate Chargeback Program The cardholder has disputed the charge and you have been placed in the Immediate Chargeback Program.
- FR6 Placed in the Partial Immediate Chargeback Program The cardholder has disputed the charge and you have been placed in the Partial Immediate Chargeback Program.

Authorization

Reason Code Reason Code North-America Reason Description
4521 A02 No Valid Authorization The payment could not be authorised.
- A01 Incorrect Transaction Amount Presented Charges were incorrectly submitted by using an incorrect amount.
- A08 Authorization Approval Expired The payment could not be authorised because the transaction expired.
4751 - Expired Authorization The payment could not be authorised because the transaction expired.

Processing Errors

Reason Code Reason Code North-America Reason Description
4507 P05 Incorrect Transaction Amount Presented Charges were incorrectly submitted by using an incorrect amount.
4512 - Multiple Processing A charge was incorrectly submitted more than once to the cardholders account.
- P08 Duplicate Charge The cardholder claims that a single transaction was processed more than once.
4522 - Authorization Declined An Authorization Request was declined.
4523 P01 Unassigned C/M Account Number Account number does not correspond to the account numbers the issuer has on file for this cardholder.
4525 - Transaction Amount Changed The cardholder claims that the amount they agreed to pay differs from the amount charged.
4530 - Currency Discrepancy The cardholder was advised the charge is in a currency that differs from that which they originally agreed upon.
- P23 Currency Discrepancy A cardholder claims the converted amount of charge on an international transaction is incorrect.
4536 P07 Late Presentment A charge was submitted for payment outside the timeframe.
4752 P03, P04 Credit/Debit Presentment Error When an account is posted a debit in place of a credit by mistake.
4755 - No Valid Approval Code A transaction where Authorization was required but not obtained.
4758 F22 Expired/Not Yet valid card A transaction completed with an expired card.

Consumer disputes

Reason Code Reason Code North-America Reason Description
4515 C14 Paid through Other Means The cardholder provided proof of payment by another method.
4532 - Damaged and/or Defective Goods/Services The cardholder disputes the quality of the merchandise or services.
4544 C28 Cancelation of Recurring Goods/Services services Cardholder claims that their account continues to be billed for recurring goods or services that they had previously canceled or revoked.
4554 C08 Goods and Services Not Received The cardholder claims that the goods or services that were purchased at your business have not been received.
4754 - Local Regulatory/Legal Dispute The cardholder alleges that a law or regulation was not followed.
- C02 No Credit Received A credit has not been applied to cardholders account for either: goods/services canceled; an advance deposit/ payment or a no show reservation.
- C04 Goods and Services not Received/Refused The cardholder claims that the goods or services that were purchased at your business have not been received or have been refused.
- C05 Goods Returned/Canceled The cardholder claims that the goods/services ordered were canceled.
- C31 Not as Described The goods or services received from your business were either not as described by your business or the price should be lower than that claimed by your business.
- C32 Damaged and/or Defective Goods/Services The cardholder disputes the quality of the merchandise or services.

Discover chargeback reason codes

Fraud

Reason Code Reason Description
Reason Code Reason Description
4752 Does not Recognize The cardholder claims that they do not recognize the transaction and states that they did not authorise the charge to their credit card.
4866 Fraud Chip Card Counterfeit Transaction A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
4867 Fraud Chip Card and PIN Transaction A cardholder is claiming that they did not authorise or participate in a transaction that you processed.
7010 Fraud Card Present Transaction A cardholder is claiming that they did not authorise or participate in a key-entered or unattended transaction conducted in a card-present environment.
7030 Fraud Card Not Present Transaction The cardholder did not authorise or participate in a transaction conducted in a card-absent environment (such as internet, mail-order, phone-order, etc.).

Authorization

Reason Code Reason Description
4753 Invalid Cardholder Number Account number does not correspond to the account numbers the issuer has on file for this cardholder.

Processing Errors

Reason Code Reason Description
4534 Duplicate Processing The cardholder claims that a single transaction was processed more than once.
4542 Late Presentation The transaction was not sent to Discover within the timeframe required.
4550 Credit/ Debit Posted Incorrectly When an account received a debit in place of a credit by mistake.
4586 Altered Amount The cardholder claims that the amount they agreed to pay differs from the amount charged.
4865 Paid by Other Means The cardholder claims that they paid for the merchandise or service by other means (such as cash, check, other card, etc.).

Consumer disputes

Reason Code Reason Description
4755 Non-Receipt of Goods or Services The cardholder claims that the goods or services that were purchased at your business have not been received.
4553 Cardholder Disputes Quality of Goods or Services The cardholder disputes the quality of the merchandise or services.
4541 Recurring Payment Cardholder claims that their account continues to be billed for recurring goods or services that they had previously canceled or revoked.
8002 Credit Not Processed A credit has not been applied to the cardholder's account for either: goods/services canceled; an advance deposit/ payment or a no show reservation.

JCB chargeback reason codes

Fraud

Reason Code Reason Description
534 Unauthorized Multiple Transaction This chargeback occurs when two or more transactions take place at one location, and the cardholder claims they only authorised or participated in one.
546 Unauthorized Purchase The cardholder did not authorise or participate in the transaction.
526 No Signature Signature is missing from the Sales Draft you sent to Adyen.
527 No Imprint Sales Draft does not contain a JCB Card imprint or the Transaction data read from the magnetic stripe or IC chip of the JCB Card.

Authorization

Reason Code Reason Description
517 Requested Copy Illegible This chargeback occurs when the Issuer of an account requests a copy of a transaction receipt on behalf of the cardholder, and a legible copy of the draft requested was not received.
522 Authorization Declined An Authorization Request was declined.
523 Incorrect Card number Account number does not correspond to the account numbers the issuer has on file for this cardholder.
503 Expired JCB Card A transaction completed with an expired card.
547 Card on Stop List This chargeback occurs when the JCB card presented for payment was listed on a Stop List that was effective at the time of sale.

Processing Errors

Reason Code Reason Description
507 Incorrect Transaction Amount The cardholder claims that the amount they agreed to pay differs from the amount charged.
510 Mispost When an account is posted a debit in place of a credit by mistake.
512 Duplicate Processing The cardholder claims that a single transaction was processed more than once.
524 Addition Error The Cardholder's copy of the sales draft or other transaction record shows an error in addition which causes the total amount to be incorrect.
525 Altered Amount The cardholder claims that the amount they agreed to pay differs from the amount charged.
536 Late Submission The transaction was not sent to JCB within the timeframe required.
541 Illegible Item This chargeback occurs when the Issuer of an account requests a copy of a transaction receipt on behalf of the cardholder, and a legible copy of the draft requested was not received.
581 Split Sale This chargeback occurs when a transaction requiring an authorization decision was split into two or more card sales to avoid authorization, and had the whole sale been submitted for authorization, it would have been declined.
583 Paid by Other Means The cardholder claims that they paid for the merchandise or service by other means (such as cash, check, other card, etc.).

Consumer disputes

Reason Code Reason Description
502 Cardmember Dispute The cardholder claims that the goods or services that were purchased at your business have not been received.
513 Credit Not Received A credit has not been applied to the cardholders account for either: goods/services canceled; an advance deposit/ payment or a no show reservation.
516 Non-Receipt of Requested Item The cardholder claims that the goods or services that were purchased at your business have not been received.
544 Canceled Recurring Transaction The cardholder claims that their account continues to be billed for recurring goods or services that they had previously canceled or revoked.
554 Non-Receipt of Merchandise/Non-Receipt of Cash at ATM This chargeback occurs when the cardholder does not receive merchandise at the agreed location.
537 No show dispute The cardholder claims they were not properly informed of the No-Show or cancellation policy at the time of the reservation.
538 Advance Deposit The cardholder claims they were not properly informed of the cancellation policy at the time of the reservation.

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