A chargeback is a forced reversal of a card transaction initiated by the cardholder through their issuing bank. The bank withdraws the funds from your merchant account and returns them to the cardholder, often along with a chargeback fee. A chargeback typically occurs when the customer claims fraud, product issues, or billing errors.

Chargebacks are governed by card network rules (Visa, Mastercard, etc.) and include specific timelines and evidence requirements.

A chargeback is similar to — but different from — a regular refund.

• You issue refunds, so you know when and why they happen. Chargebacks go through the issuing bank, so you are usually excluded from the conversation.
• A refund may or may not trigger a fee. Even if it does, the fee is usually less than a chargeback fee.
• You set all your own refund policies, deciding what warrants a refund and how long a customer can wait to request it. With chargebacks, the card network controls everything.
• If a customer requests a refund for merchandise they’ve purchased, you will probably ask them to return the merchandise first. And, you’d expect it to still be in new, unused condition. But if a customer files a chargeback, they aren’t required to return the merchandise.

Not only do chargebacks cause you to lose money, they can also damage your business’s reputation. Card networks and acquirers expect your chargeback ratio to be below a certain threshold. If you go over the threshold, you could be penalized — usually in the form of fines, enrollment in a monitoring program, and possibly even account closure.

It’s important to prevent chargebacks whenever possible. There are various tools and techniques you can implement to reduce the likelihood of chargebacks. In addition to advice on how to optimise your business policies and procedures, AltoPay also offers best-in-class chargeback prevention solutions. These solutions help you proactively resolve customer disputes before they progress to chargebacks. AltoPay can also help you respond to invalid chargebacks that unjustly revoke revenue. Both prevention and recovery solutions come with in-depth, real-time reporting.