Who loses money in a chargeback?Chargebacks (2024)

FAQs

Who loses money in a chargeback?Chargebacks? ›

Filing a chargeback means the cardholder is attempting to bypass the merchant altogether by asking the bank to intervene. Successful disputes mean the merchant loses the revenue from the sale, plus the value of the merchandise. They'll also forfeit any overhead costs like shipping, fulfillment, and interchange fees.

Loss of revenue: Chargebacks result in a direct loss of revenue for merchants, as they have to refund the disputed amount to the customer.

A chargeback fee is a variable amount charged by a bank for each dispute. The fee is paid by the merchant and helps cover the bank's costs involved in settling a chargeback. Chargebacks can be the result of criminal fraud or may be caused by a merchant error.

Each chargeback involves administrative fees, potential penalties, and the loss of the original transaction amount, plus additional costs like labor for dispute resolution and potential loss of goods.

Chargeback fees cost between $20 and $100, depending on the merchant's agreement with their acquirer. When you add these fees up with all the other hidden and indirect costs, companies often lose more than twice the transaction amount for each chargeback.

You might not always get a fair outcome when you dispute a chargeback, but you can increase your chances of winning by providing the right documents. Per our experience, if you do everything right, you can expect a 65% to 75% success rate.

The issuing bank will assign a reason code and file the chargeback. If the merchant decides to represent, they will need to compile documents and submit a rebuttal. The issuer will make a decision, although a second chargeback is also possible.

A chargeback is triggered whenever a customer disputes a purchase made with their debit or credit card. For most merchants, chargebacks are a common blight and one of the risks of doing business that are tough to avoid. However, if a chargeback seems illegitimate it should always be fought when possible.

From a financial perspective, you not only lose the money, but also the product or service that you sold to the customer as they won't return it. Chargeback disputes all take up a considerable amount of time as you need to provide documents and evidence to the payment provider.

Considerations when disputing chargebacks

Merchant liability: Merchants are generally liable for all chargebacks in card-not-present (CNP) transactions.

Do banks really investigate chargebacks? ›

In an effort to provide better customer service, banks will typically resolve conflicts fast. The bank launches an investigation into payment fraud by requesting transaction details from the cardholder. They examine crucial information, such as whether the transaction was card-present or card-not-present.

An effective representment strategy typically results in a win rate between 65% and 75%, but some merchants would feel lucky to reach even half that. To help out, let's go over four basic tips merchants can use to get more chargeback reversals.

Chargeback fraud, in law, can sometimes be considered a form of payment card fraud or wire fraud. So can chargeback fraud result in jail time? Technically, yes, but usually only in extreme circ*mstances where it's used to steal very high values or volumes of products and services.

While there isn't a guarantee to win a chargeback dispute as a seller even if you are in full rights, there are some steps that you can take to increase your chances significantly.

Chargebacks are particularly detrimental because they directly affect a company's bottom line. The financial implications extend beyond the transaction value, including fees, administrative costs, and potential penalties.

The business can sue the person who issued the chargeback in small claims.

The charge goes back on your credit card

If you win, then the provisional credit becomes a full reversal of the charge. If you lose your dispute, then the charge goes back on your credit card bill. You'll be expected to pay it, just like any other transaction.

Who is Liable for Chargebacks? Merchants are liable for chargebacks in most cases and bear the burden of proof in any dispute. A merchant must make their case for why a chargeback should be reversed. If no action is taken by the merchant, the cardholder wins by default.