Chargebacks

Know Your Chargeback Dispute Types: Debit Card vs. Credit Card

Blog Image - Know your dispute types


Ask any e-Commerce professional to give you a quick, concise definition of the word "chargeback," and it's almost certain their definition will mention credit cards—which, on the face of it, is perfectly accurate.



How are chargebacks & disputes defined?

A chargeback (sometimes called a dispute) is the process initiated when a customer disputes a charge with their card's issuing bank.

***For a more in-depth answer, refer to our current "What is a Chargeback?" guide.

However, many banks now offer customers debit cards that can be run as Visa or MasterCard transactions at the point of sale.  

Thus, it's not strictly accurate credit cards are the "only" type of card subject to chargebacks.  A debit card can incur a chargeback, too, and there are several significant distinctions between credit card and debit card chargebacks.



Why do debit card chargebacks happen?

People dispute debit card charges for the same reason as credit card charges. In both cases, these types of chargebacks are initiated when the cardholder contacts their bank and asks to have a charge reversed, either because they were unable or unwilling to solve a purchase issue with the merchant, or because of fraudulent activity on their card.


What happens during a chargeback?

In the regular chargeback process, is that the issuing bank gives a temporary credit to the cardholder and forwards the dispute to the acquiring bank, who notifies the merchant. If neither the acquiring bank nor the merchant can successfully fight the chargeback by presenting compelling evidence that the original charge was valid, the chargeback is upheld, the cardholder keeps their credit, and the funds are taken back out of the merchant's account. Sometimes, if the acquiring bank and the issuing bank can't agree on the evidence presented, the matter is referred to arbitration by the card network.

Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes



What's the Difference Between Credit and Debit Card Chargebacks?

There are several key differences between debit card chargebacks and credit card chargebacks. One of the primary ones is that a debit card transaction takes cash directly out of the cardholder's bank account, while a credit card transaction merely registers a debt that the cardholder has agreed to pay back to their issuing bank.
As such, the banks have more incentive to take aggressive action on disputed credit card transactions—they make no money unless the cardholder acknowledges the debt as valid and pays it back.
It's also easier for the cardholder to see the problem as less urgent and to kick it back to their bank to deal with. When a fraudulent or problematic transaction hits a debit card account, the cardholder is immediately out real money and may be more motivated to negotiate with the merchant directly, to get a refund as quickly as possible. The chargeback process, even if it is resolved in the cardholder's favor, won't get them their money back as fast as a merchant-authorized refund would.
Debit and credit cards also offer different levels of fraud protection. Credit cards generally cap cardholder liability at $50, with many banks offering zero-liability cards that reimburse cardholders for the full amount of fraudulent charges.
Debit cards have the same $50 liability cap at first, but there's a time limit attached. If a disputed charge isn't reported within two days, the cap goes up to $500. After sixty days, the cardholder is on the hook for the entire charge. This is one of the reasons why consumers are advised not to use debit cards for "risky" purchases like card-not-present (CNP) transactions, situations where the card is taken out of the customer's sight (like restaurants), and instances where the product or services are delivered long after the card is charged and the time to dispute the transaction may have already expired.


To break everything down concisely, here’s an overview of the ways in which debit card chargeback disputes and credit card chargeback disputes compare:
 

 

Debit Card

Credit Card

Initial Transaction

Cash direct from account

Registers debt owed

Cardholder Liability Cap          

$50 to total purchase value, depending on when the report is made. Liability is capped at $50 if reported within two days, $500 if reported within 60 days, and the full transaction amount, if reported outside after 60 days.

Generally $50

Timeline to Dispute a Charge

Much Faster, due to limited consumer protection.

Longer (as fraud protection does not change based on time)

Timeline for Consumer Account Refund

Up to ten days

Generally within 1-2 business days

 

Knowing that both types of chargeback disputes still come with their fair share of headaches, even with some advantages per type, let’s focus on some proactive options you can take for your business.



What's the Best Way to Fight Debit Card Chargebacks?

Once the dispute has reached the point of entering the regular chargeback process, fighting a debit card chargeback isn't any different than fighting a credit card chargeback.
In either case, the best way to fight the chargeback and keep your money is to provide compelling documentation and evidence that the purchase was legitimate—and to have knowledgeable advocates such as a chargeback management company working around the clock to fight on your behalf.


How can Debit Card Chargebacks be prevented?

Here's the good news about debit cards: because of the differences between debit card chargebacks and credit card chargebacks from the customer's perspective, it may be easier to steer your customers toward not turning issues with debit card purchases into chargebacks in the first place.
Without question, the best thing you can do is provide top-notch customer service, so that, when a customer feels like something has gone awry with a transaction, they're more likely to take it up with you and ask for a refund, before they complain to their issuing bank.
This way, you always have the option to give them the refund and can avoid having another chargeback against your merchant account.
Clearly articulated, readily accessible explanations of your policies, in regard to returns, exchanges, and authorization holds, can also help. Unexpected charges can be especially troubling for debit card users, so make sure your customers are fully informed about automatic charges, variable subscription amounts, or anything else that might catch them off guard.
Your best practices for avoiding debit card chargebacks will also help you avoid credit card chargebacks—and when prevention isn't enough, you'll want a chargeback management firm in your corner, to help you win challenges and arbitration.


Want to stop the ever-growing chargeback trend and protect your revenues?  Disputes don't need to be part of your accounting. Rather than write chargebacks off as a cost of doing business, download this guide and learn how to prevent them altogether.
Download 'Why Chargebacks are No Longer a Cost of Doing Business' now.