Chargeback is the term used when a customer disputes a charge on her credit card bill. Generally, chargebacks will happen for one of several reasons:
- A clerical error, such as a customer being double-billed or being billed for an incorrect amount
- Customer dissatisfaction, such as not receiving a product or receiving a product different than what was paid for
- A customer not recognizing a purchase, especially if the merchant name that appears on her bill differs from the actual name of the store
- Fraud — when a customer claims she did not authorize a purchase or a purchase was made as a result of identity theft
For most transactions, customers have 120 days from the sale or when they discovered a problem with the product to dispute a charge.
The bottom line here is that whenever customers feel that they have been charged for something they shouldn’t have, they can file a dispute with their bank which begins the chargeback process. The entire process will be detailed in the next section, but it’s worth noting here that resolving these disputes can sometimes take more than two months — PayPal, for example, advises its merchants that the whole process can take up to 75 days. During this time, the revenue from the disputed sale is withheld from the merchant’s account.
Whenever a chargeback is initiated, a merchant will receive a code from its issuing bank that gives a reason for the dispute. Some of the most common Visa and MasterCard chargeback codes are listed below. Once a customer has disputed a charge, a merchant’s acquiring bank will begin going through a specific procedure to resolve the issue.
If a merchant has too many chargebacks that they loose, they could also use their merchant account and be placed on Terminated Merchant File (TMF), which means that they may not be able to open another merchant account under their own name.