Why Cardholders File Chargebacks

Two hands fighting to hold stack of money_CardinalCommerceIf a consumer believes they’ve been wrongfully charged by a merchant, they can file a chargeback with their issuing bank, essentially asking for their money back. The process typically follows a set cadence: the consumer, or cardholder, files a chargeback with their issuing bank; the bank issues the consumer a refund, pulling the money out of the merchant’s bank account; then the merchant is subsequently notified that there was a chargeback. If a consumer trusts a given merchant, they can choose to forgo the chargeback process and deal with the merchant directly, but issuing a chargeback is typically a more effective way of getting a refund. The merchant can fight a chargeback through re-presentment, but chargebacks, in general, are a costly part of accepting credit card transactions.  

Reasons for Chargebacks

When notifying a merchant that a consumer has filed a chargeback, issuing banks typically include an accompanying “reason code.” But, merchants often want more information regarding the reasons behind these chargebacks.

A consumer’s credit card might be charged twice, because of a confusing online purchase process, or because of a clerk error in a physical store. When a consumer intends to purchase only one item, but is charged for an additional item, they will likely file a chargeback to dispute the duplicate charge.

Cardholders also file chargebacks because of items that don’t arrive on time, or items that don’t arrive at all. Merchants often blame their chargebacks on shipping errors. Even when a merchant uses a reputable shipping service, it’s still possible for there to be a problem with delivery. A late delivery or a complete failure to deliver can result in a chargeback. 

Consumers also file chargebacks because of fraud. In some instances, the consumer will file a chargeback because their credit card was stolen. When a fraudster uses a stolen card, and the legitimate consumer notices, they will very likely file a chargeback. The consumer will explain that they never ordered the goods in question, and ask that the charge be reversed.

Who is Protected?

These reasons explain the cardholder’s rationale for filing a chargeback, and many of them are understandable and legitimate. The chargeback system was created to protect the consumer from fraudulent or mistaken transactions. The issuing bank typically supports its user — the cardholder — in chargeback disputes, and issues a refund from the merchant’s bank. The consumer has the opportunity and ability to file chargebacks fairly easily.

But, each chargeback is a hassle for the business owner, and often causes them to lose time and money to this process. While, for the consumer, there are understandable motivations for filing chargebacks, the process is often costly for the merchant. As the business owner, you need to establish policies and procedures to protect your business from avoidable chargebacks.  


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