What is A Chargeback?
As you know, customers or cardholders obtain credit cards from banks, which are referred to as the “issuing bank.” A chargeback (also known as a reversal) is a form of customer protection provided by the issuing banks, which allows cardholders to file a complaint regarding fraudulent transactions on their statement. Once the cardholder files a dispute, the issuing bank makes an investigation into the complaint.
Once the transaction is proven to be indeed fraudulent, the bank will refund the original value to the cardholder. From the merchant’s point of view, if you do not prove the transaction to be legitimate, the bank will take back the entire value of the transaction from your account, along with an additional fee. This chargeback fee will range from $0 to $100, depending on the merchant bank sponsoring your account.
If the cardholder complaint is proven untrue, no refund is requested from the merchant, though additional processing fees may be charged. For obvious reasons, it is best for your business not to get involved with chargebacks. With situations like these, the merchant stands the risk of losing products or services that have already been sold, the payment, the fees incurred for payment processing, money for chargeback penalty, or even possible commissions for currency conversions. It is thus best to avoid chargebacks at all times. Also, note that merchant accounts receiving too many chargebacks can be labeled by credit card companies as fraudulent, and this can be potentially damaging to the image and the existence of your business. Know also that credit card issuing banks take chargebacks seriously, because they are at the most advantage. They don’t only levy fees, but they can also hold merchant remittance up to three months to cover the fraud, or increase their commissions if they choose to label your account “risky.”
By law the cardholder has two years to file a dispute. Your sales can be reversible for two years… That means saving documentation for two years… Most banks will have a policy against handling disputes that are more than six months old but if the cardholder pushes it they
have two years to file a dispute.