What is a chargeback?

A Chargeback is a reversal of a payment and occurs when a cardholder files a dispute with the financial institution that issued the card. A chargeback differs from a refund or “credit,” which is agreed to and initiated by the merchant.

When a chargeback is initiated, the card issuing financial institution will investigate the dispute, and will “charge back” the value of the original transaction directly from the merchant account processor, which is obligated under card network rules to pay the card issuer. The merchant’s processor will then attempt to recover an equal value of the chargeback plus a processing fee from the merchant’s bank account. Chargebacks can be overturned if the merchant can prove the transaction was legitimate, or goods and services have been rendered to a customer claiming otherwise.

To protect against chargebacks, merchants should list the DBA their customers are familiar with on the cardholder statements and make sure the customer fully understands the products, costs, and timing of delivery.