Chargebacks provide a mechanism for cardholders to file a complaint regarding “fraudulent transactions” listed on their statement. All chargebacks are problems for the merchant – guilty until proven otherwise! The payment card industry has made it easy for consumers to file chargebacks and transaction disputes, while merchants are left with little industry support.
The chargeback dispute is investigated by the issuing bank. If the transaction is deemed fraudulent, the bank will refund the original value to the cardholder. Unless the merchant can prove the transaction was legitimate, the bank will reverse the transaction from the merchant account. It is also likely the bank will debit additional charges against the merchant account even if the complaint is proven to be without merit and no refund is taken from the merchant account.
Excessive chargebacks will cause a merchant-business to be labeled high risk which can lead to higher fees, significantly eroding operating margins. Abnormal chargeback rates can result in termination of the merchant account, a devastating blow to any business. Even if a company tightly controls its chargebacks, merchant/owners deflect time and resources from focal business activities to provide retrieval details and documents of proof, losses that can never be recovered. Indeed, chargebacks are serious issues.