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A chargeback occurs when a consumer requests a refund from their credit card company. The merchant is billed by its merchant bank, which has been billed initially by the card issuer. This may happen for a number of reasons, but most often the result of fraud.

There are many different reasons why a merchant might receive a chargeback. Most are initiated by the cardholder, who may contact his card issuing bank regarding an inconsistency in his monthly credit card statement. This begins the dispute process that may eventually lead to a chargeback, and a reinstatement of credit to the cardholder's account.

One of the most common reasons for a chargeback is known as a fraudulent transaction. A credit card is used without the consent or proper authorization of the cardholder. In most cases, a merchant is responsible for charges fraudulently imposed on a customer.

Chargebacks are often the result of a customer dispute over credit. This type of chargeback is usually described as credit not processed. A customer may have returned merchandise to a merchant in return for credit, but credit was never posted to the account. In this example, the merchant is responsible for issuing credit to its customer, and would be charged back.

Other types of chargebacks are related to technical problems between the merchant and the issuing bank, whereby a customer was charged twice for a single transaction (duplicate processing) or other various mistakes. Yet other chargebacks are related to the authorization process of a credit card transaction, for example, if a transaction is declined by its issuing bank and the account is still charged.

Another reason for chargebacks are when a customer does not receive the item they paid for. In this case, a chargeback is initiated and the payment to the merchant is reversed.

List of reasons for a chargeback:

• Card holder requests a copy of the transaction receipt.
• Card holder did not authorize the transaction.
• Non-matching account number.
• Transaction was processed more than once.
• Transaction receipt was not imprinted.
• Refund not processed.
• No authorization.
• Customer never received merchandise/services.
• Invalid T & E (Travel & Entertainment) transaction.
  • Failure to notify cardholder of pre-authorized amount.
  • Final charged amount cannot exceed 15% (20% for restaurants) of pre-authorized amount.
  • Must immediately voice-authorize and delete transaction if a customer uses another payment method upon checkout.
  • Must wait 24 hours before attempting to reauthorize a transaction if declined.
• Card not used within valid expiration date.
• Services not rendered.
• Error in transaction amount.
• Transaction receipt is incorrect, incomplete, or illegible.
• Transaction processed for incorrect amount.
• Product different from what was described or promised.
• Counterfeit transaction.
• Transaction not processed within Visa or MasterCard time frames.
• Failure to obtain card-holder signature.
• Signature on the card was blank.
• Signature on receipt different from card.
• Card-holder never authorized transaction.
• Card-holder claims merchant changed transaction amount without permission.
• Merchant knowingly participated in a fraudulent transaction.
• Incorrect Transaction Date.
• Card-holder claims invalid mail or telephone order transaction.
• Card-holder was denied ability to return item.
• Transaction was not canceled successfully.
• Card-holder not satisfied with quality of product or services.

A merchant is billed for chargebacks as they occur, along with other fees and settlements associated with credit card acceptance. Because a merchant may be charged back in error, and because chargebacks may often involve complicated customer disputes, a chargeback may be appealed by the merchant. This process varies by credit card. If the chargeback is found to have been in error, a merchant will be granted a reversal. This appeal process may sometimes result in arbitration between the credit card issuer and a merchant.

Thieves occasionally abuse the chargeback system. For example, in a "Friendly Fraud", an unscrupulous customer will make a purchase over the Internet with his own credit card and then issue a chargeback once the product or service is received. In such cases merchants can have difficulty recovering payment.

Chargeback processing (handling) is complex as a result of frequent rule changes by the major credit card companies (MasterCard, Visa, American Express, etc.). There is an emerging market for business software that simplifies the chargeback process as well as separate chargeback processing services.

• Credit card
• Credit card fraud
• CVV2
• Fraud
• Merchant account
• Chargeback insurance