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Glossary - Chargeback

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Means an invalid (in the exclusive opinion of the card issuer) sale that a cardholder disputes with the card issuer pursuant to the rules which is returned to the acquiring Bank as invalid by the card issuer pursuant to the Card Scheme Rules; A chargeback occurs when a credit/debit card holder disputes a card transaction with the issuing Bank. The issuing Bank initiates a chargeback against the Merchant account. The issuing Bank refunds the card holder and then, if there is no proof forthcoming that the card holder is responsible for the purchase, that amount of money is deducted from the Merchant's account in order to reimburse the issuing Bank.

The card issuing bank will investigate disputes, and will "chargeback" the value of the original transaction directly from the merchant's acquiring bank, which is obligated under card network rules to pay the card issuer. The merchant's acquirer will then attempt to recover an equal value of the chargeback plus a processing fee from the merchant's bank account. Chargebacks are typically passed on to the merchant as a matter of acquirer policy unless the merchant can prove the transaction was legitimate, or goods and services have been rendered to a customer claiming otherwise.

Sometimes the consumer dispute is untrue, and their refund claim gets denied. In these situations, the merchant will sometimes still be charged processing fees.

In cases of credit card fraud, the merchant loses the goods or services sold, the payment, the fees for processing the payment, any currency conversion commissions, and the chargeback processing fee. For obvious reasons, many merchants take steps to avoid chargebacks—such as not accepting suspicious transactions. This may spawn collateral damage, where the merchant additionally loses legitimate sales by incorrectly blocking legitimate transactions.