What is a Chargeback ?
On the outside, chargebacks can appear very similar to traditional refunds, yet there is one very relevant difference: rather than contact the business for a refund, the consumer is asking the bank to forcibly take money from the business’s account. An investigation follows, and if the bank feels the cardholder’s request is valid, funds are removed from the merchant’s account and returned to the consumer; the consumer, on the other hand, is in no way obligated to return whatever was purchased.
The merchant has no say in this. In fact, merchants likely won’t even know it happened until after the fact. As a consumer protection, the chargeback process is naturally skewed towards the cardholder’s safety, in multiple ways:
- Chargebacks are designed to keep customers feeling secure. The risk of a forced reversal of funds keeps merchants focused on providing exceptional customer service.
- Chargebacks also serve as a deterrent to merchants who might be tempted to sell sub-par products or services. Cardholders will claim the products or services were not as described, setting the stage for a chargeback situation.
- The threat of chargebacks helps merchants stay transparent. Customers can’t be expected to pay for something that was never delivered, charges that shouldn’t have been made in the first place, or refunds that never got issued.
- Chargebacks help protect cardholders from the effects of criminal fraud. In a world where even players like Equifax suffer data breaches, many cardholders aren’t even surprised when they learn unauthorized transactions have been made on their account. The ability to file chargebacks on fraudulent credit card transactions helps innocent victims recoup their money.