Merchant Chargebacks 101: What They Are & Why They Matter

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Chargebacks are a growing concern for modern merchants.  And at the rate they’re increasing, it’s no wonder why.

From 2016 to 2017, chargebacks jumped 179 percent, costing merchant’s 1.9 percent of their total annual revenue.  Add in the potential threat chargebacks pose to your reputation and merchant accounts, and you’ve got a pretty serious problem on your hands—no matter what line of business you’re in.

What is a Merchant Chargeback?

Put simply, a merchant chargeback happens whenever a customer is credited back for a card transaction. 

It occurs when the customer contacts their bank, disputes a charge on their bill or statement, and requests a refund.

Typically, consumers file chargeback disputes when they don’t recognize a transaction or are somehow dissatisfied with their purchase or the buying experience.  In some cases, they may simply be trying to get their product or service for free.

The Chargeback Process

Once a customer files a dispute, the chargeback process begins.  This process includes several parties, including the consumer, the issuing bank, the merchant and the merchant’s acquiring bank.  If the merchant has hired a chargeback representment agency, they will be involved as well.

Here’s how it works:

 chargeback representment process-update


How the Dispute Process Works

It’s important that merchants see chargebacks not just as a cost of doing business, but as a challenge that can be overcome.  Though a customer might claim a transaction was fraudulent or demand a refund, merchants very often have the evidence they need to support otherwise – and that could allow them to recover their losses and fight back.

If you receive a chargeback that you believe is unfounded, you as a merchant have the right to dispute the chargeback. 

To do so, you’ll first need to submit a rebuttal letter to argue your case, along with a number of supporting documents and pieces of evidence. 

Exactly what evidence you’ll need will depend on the exact reason code associated with your chargeback.

If you plan to dispute a chargeback, it’s important to act quickly.  Issuers often lag behind when notifying acquirers and merchants of chargebacks, so you may have a very small window in which to respond.  Having a chargeback representment team at your disposal can help you act swiftly and efficiently, no matter what the time frame may be. 

The True Cost of a Chargeback

In the event a chargeback seems illegitimate, it’s important merchants fight back whenever possible. 

Chargebacks don’t just equate to the loss of a sale or merchandise.  In fact, they typically mean losses of up to 2.5 times the sales price.  

So, for a $100 chargeback, a merchant would pay $250 in fees, fines, customer acquisition costs and more.

Chargebacks can often threaten your cash flow and put your merchant accounts at risk, too.  They could even increase your merchant account costs or cause your accounts to be shut down, preventing you from accepting payment altogether.

Don’t Take Chargebacks Lying Down

The moral of the story is simple: don’t take chargebacks lying down. 

Are you looking to stop merchant chargebacks and protect your revenues?  If so, you must first take steps to understand the problem.  

Download your copy of the Chargebacks 101 Guide to better understand the causes of chargebacks, and how the overall chargeback process works so you can fight customer chargebacks and prevent them in the first place.

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