What is a chargeback? Definition, types, and how to prevent

Have you ever made a payment but later found something wrong with the transaction? Perhaps you were charged the wrong amount or the product you ordered never arrived. In these situations, you might consider requesting a chargeback.
This guide will explain what a chargeback is, how they work, and when to request one. We’ll also cover the steps to take if you encounter issues after you send money internationally.

What is a chargeback?

A chargeback is when a payment made with a credit or debit card is reversed by an issuing bank. It allows you to dispute a transaction and have your bank return the funds if there is an error or fraudulent activity. This process helps protect you from unauthorised or incorrect charges.

Are chargebacks the same as refunds?

Chargebacks and refunds are not the same. A refund is when a merchant returns your money after you ask for it. The merchant issuing the refund will directly send money to a bank account.
A chargeback is different. It’s initiated by you through your bank when you can’t resolve a dispute with the merchant. Instead of asking the merchant for your money back, you request your bank to reverse the transaction.

How do chargebacks work?

The chargeback process allows you to dispute a transaction and request a reversal through your bank.
Here’s how the chargeback process generally works:
• Cardholder files a chargeback: You start the dispute by contacting your bank and providing details about the problematic transaction.
• Issuer assigns reason code: The bank assigns a specific reason code that identifies the type of dispute, such as fraud or non-receipt of goods.
• Issuer investigates the complaint: Your bank reviews the dispute by gathering evidence from both you and the merchant.
• Merchant receives and reviews the chargeback: The merchant is informed and can either accept the chargeback or dispute it if they believe the charge is legitimate.
• Issuer makes a decision: Based on the evidence, your bank decides whether to approve the chargeback and reverse the transaction or reject the claim.

How long does a chargeback take?

The chargeback process can take anywhere from 30 to 90 days due to the multiple steps in the process. It also depends on various factors, such as the complexity of the dispute and the responsiveness of the merchant.

Credit card vs. debit card chargebacks

You can request a chargeback on a credit card transaction, and it’s usually a smoother process. Since the funds are tied to your credit limit and not directly withdrawn from your bank account, the bank can more easily reverse the charge. Credit cards often come with stronger fraud protection, giving you an extra layer of security in disputed transactions.

Can you do a chargeback on a debit card?

You can request a chargeback on a debit card transaction. The process is the same as a credit card chargeback, but it can take longer because the money has already been withdrawn from your account. Your bank will investigate the claim and, if valid, will refund the amount to your account.

Can you get a chargeback on a bank transfer?

You generally cannot get a chargeback on a bank transfer. Unlike credit or debit card transactions, bank transfers are typically final once processed. This means that if something goes wrong, reversing the transaction isn’t as straightforward.
If you need to reverse a local or international bank transfer, contact your bank immediately to report the issue. They might be able to assist, but success often depends on how quickly you act and the specific situation. To enhance security and peace of mind, consider using a trusted money transfer app that offers extra layers of protection.

When to ask for a chargeback?

Your first step should be to ask the merchant for a refund. This is often the quickest and simplest way to resolve the issue, as the merchant can directly reverse the transaction. You can request a refund by contacting the merchant’s customer service and explaining the problem with your purchase.
There are times when getting a refund from the merchant isn’t possible, making a chargeback your next best option. Here are situations where requesting a chargeback is appropriate:
• The merchant refuses to issue a refund: If the merchant declines your request for a refund or is uncooperative.
• The merchant doesn’t respond to refund request: If the merchant fails to respond to your attempts to resolve the issue.
• Non-receipt of goods or services: You paid for something that never arrived, or the service was never provided.
• Dissatisfaction with goods or services: If the product or service received is not as described or does not meet expectations, and the merchant refuses to resolve the issue.
• Unauthorised transactions: Charges were made on your card without your permission or knowledge.
• Billing errors: You were charged the wrong amount or charged multiple times for the same purchase.
• Fraudulent activity: You suspect that the transaction was part of a scam or fraudulent scheme.

Types of chargebacks

Chargebacks can occur for various reasons, and they generally fall into one of the following categories:

Merchant error chargeback

A merchant error chargeback happens when a mistake occurs during the transaction process. Here are the common types of merchant error chargebacks:

Duplicate charge

A duplicate charge occurs when a merchant accidentally charges you twice for the same transaction. For instance, you may have swiped your card, and the system processed the payment twice. A chargeback can help you recover the duplicated amount.

Incorrect charge amount

This type of chargeback is initiated when the amount you were charged does not match the amount you agreed to pay. For example, if you were charged £100 for a product that was supposed to cost £50, a chargeback can be used to retrieve the overcharged amount.

Non-compliance with card network rules

Non-compliance chargebacks occur when the merchant fails to follow card network rules. For example, if a merchant processes a transaction without proper authorisation or violates other payment network regulations, you may have grounds for a chargeback.

Chargebacks from criminal fraud

Chargeback fraud happens when someone makes unauthorised transactions on your account without your knowledge or consent. In these situations, you’re not responsible for the fraudulent charges and you can request a chargeback to get your money back.
Here are some examples of when chargeback fraud is valid:
• Stolen card: If your physical card is stolen and used for unauthorised purchases.
• Account hacking: When someone hacks your account and makes fraudulent purchases.
• Counterfeit card: If a fake card is made with your stolen details and used for unauthorised transactions

Chargeback fraud

While chargebacks are a valuable protection tool, they can be abused. Chargeback fraud, also known as friendly fraud, happens when someone falsely disputes a legitimate transaction to get their money back while keeping the goods or services. This is illegal and can lead to serious consequences.
Chargeback fraud often involves claiming that a product was never received or that the transaction was unauthorised when it was legitimate. Merchants are increasingly aware of this type of fraud and may take steps to challenge fraudulent chargeback claims.

FAQs

What qualifies for a chargeback?

A chargeback is generally valid in cases of unauthorised transactions, billing errors, non-receipt of goods or services, or fraudulent activity. The exact criteria can vary based on your card issuer’s policies.

Is a chargeback a refund?

No, a chargeback isn’t the same as a refund. A refund comes directly from the merchant, while a chargeback is initiated with your bank to reverse a disputed transaction.

Why would a bank do a chargeback?

A bank processes a chargeback to protect you from fraudulent or incorrect charges. This helps ensure you’re not unfairly billed for goods or services you didn’t receive or authorise.