07 May



What is chargeback?

A chargeback can be defined in simple terms as a transaction reversal that is meant to help or be as a consumer protection from any form fraudulent activity that is committed by both the merchants and the individuals. One would also say that it is a demand by any credit card provider for a retailer to make good the loss on a fraudulent transaction.

What normally happens is that the credit-card holders file a dispute with their issuing bank where the merchant’s bank is debited the amount of transaction that was previously credited. The merchant has then to produce evidence to show that no fraudulent activity was committed during the mentioned transaction. If the bank sees that the evidence presented before them is overwhelming then they will overturn the card holder’s dispute and the return the money to the merchant.



The customer is a cardholder who is deemed to have made purchase with a particular merchant. Sometimes it’s a statement from the merchant that is not recognized.


The issuing bank is known to be the bank that provides cards i.e. credit, debit and prepaid card to the consumers. The issuing bank is the underwriter of the said account and the sole institution in the disbursement of funds from the customer to the merchant.


This is the body that verifies the customer’s account balance and it can either authorize or deny transaction requests through the card network.


These involve cards such as Visa, MasterCard, Discover and American Express and are known to be some of the four major card networks.


This is a business, company, brand or service provider that provides a good or service in exchange for payment.




The chargeback process is closely similar to the legal process where both parties that is the cardholder and the merchant are both given a chance or opportunity to offer or table evidence in favor of their claims. The following are some of steps that take place in the process:-


1.STEP 1

This is the point that a customer files a dispute by contacting his or her issuing bank about a certain transaction. The complaints are sometimes issued via online form.

  1. STEP 2

The next step that occurs is that the bank then takes time to review the disputed transaction to determine whether to send the chargeback to the card network or not. If the dispute is not valid, the process normally ends immediately.

  1. STEP 3

If the dispute is valid, the bank then provides an immediate credit to the customer for the disputed amount and then there is a flow of funds from the merchant commercial bank to the issuing bank.

  1. STEP 4

The issuing bank then issues or submits posts the chargeback to the card network who them passes it on to the merchant.

  1. STEP 5

The acquiring bank then receives the chargeback and passes it on to the merchant.

  1. STEP 6

This is the point at which the merchant chooses to respond to the chargeback or not. In a situation where the merchant chooses to respond, compelling evidence is then gathered that is related to the transaction.

7.STEP 7

The acquiring bank then reviews the compelling evidence and then passes the information to the card network who then passes that information to the issuing bank. If the issuing bank sees that the evidence from the merchant is compelling and the chargeback is not valid, the issuing bank will decline the chargeback and pull the funds from the issuing bank.

  1. STEP 8

The customer is then given the option to chargeback the transaction again.


If you need help contact Phoenix Advisors – www.phoenixadvisorsgroup.com


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