s all merchants know, chargebacks are an undesirable aspect of doing business, however, it is necessary to know the ins and outs of them if you want to accept credit cards. Since many of the customers that you deal with day-to-day will want to use credit cards, it is recommended that you accept them.
Chargebacks are a mechanism in place to protect the consumer, in case they receive deficient product or service and the merchant refuses or is unable to refund them (for example, if the merchant went out of business). However, sometimes consumers do not understand the nature of chargebacks and assume they’re just like refunds—and they couldn’t be further from the truth! A chargeback has a negative impact on the merchant, and too many chargebacks can result in a merchant account being terminated by the payment processor and the merchant potentially being placed on MATCH.
So,what happens when you get a chargeback?
When a customer is unhappy with a product or service,it is recommended that you refund them, lest they file a dispute with theircard-issuing bank.
The timeline goes like this: The customer will file a complaint with their issuing bank, and that bank will make a determination as to whether or not the complaint is valid. Since issuing banks tend to side with their customers over merchants, they will most likely find the chargeback valid. This means that the customer is refunded the money and the issuing bank will contact the merchant’s bank to begin the chargeback process.
Next, the merchant’s bank will let the merchant know the situation and determine whether or not the chargeback is valid on their end. As with the issuing bank, merchant banks tend to side with the customer as well, just to be on the safe side. Once the chargeback process has ended and the merchant is informed that the customer has received the chargeback, they are able to contest the finding with a chargeback dispute.
If you tried to resolve the issue with the customer and they file and received a chargeback anyway, or if they never contacted you at all for a refund, you do have the option to dispute that chargeback, and the major card brands all have different rules and regulations regarding that—see our articles on the American Express Chargeback Dispute Process, MasterCard Chargeback Dispute Process, and Visa Chargeback Resolution.