A chargeback occurs where an issuing bank forcibly initiates the return of funds into a customer’s bank account. In the event that a consumer files a dispute against a transaction that has been taken from their account, a chargeback enables them to regain funds back into their account.
Through the process of chargeback, the issuing bank is able to debit their customer’s account with funds that had been previously taken out. There are various reasons for a chargeback to be issued, one of which is due to an error made by the merchant; for example by using an expired card for a payment transaction at the point of sale terminal. These are not as common anymore due to the introduction of chip and pin terminals that provide much faster and efficient authorization from the card issuing banks.
Another main reason for a chargeback to be issued is in the event that the issuing bank disputes a transaction made to the merchant’s acquiring bank. For example, a customer makes an online payment transaction for goods and services and is not satisfied by what they receive. They are able to file a complaint to the merchant thus beginning the process of the chargeback.
A chargeback is most common amongst online payment transactions that consumers make whilst buying goods and services from websites. In the case that they receive damaged goods or an inadequate service, customers are able to file an official complaint, which can result in a chargeback. In order to begin the process of a chargeback, consumers are required to present a valid reason – without which the chargeback is not likely to be granted by the merchant’s acquiring bank.