Chargeback Basics

A chargeback is a payment card transaction that a card issuer returns to a merchant processing bank - and most often, to the merchant - as a financial liability. In essence, it reverses a sales transaction, as follows:

• The card issuer subtracts the transaction dollar amount from the cardholder's account. The cardholder receives a credit and is no longer financially responsible for the dollar amount of the transaction.
• The card issuer debits the merchant processing bank for the dollar amount of the transaction.
• The merchant processing bank will, most often, deduct the transaction dollar amount from the merchant's account. The merchant loses the dollar amount of the transaction.

As you can see, for merchants chargebacks can be costly. You lose both the dollar amount of the transaction being charged back and the product or service that was sold. There are also internal costs, associated with the processing of the chargeback. The following posts will discuss, in details, the reasons chargebacks occur, the available chargeback remedies, strategies for avoiding chargebacks and best practices for chargeback monitoring. The various types of chargebacks will also be scrutinized.