What Are Credit Card Chargebacks and Can You Reverse Them?

Chargeback

Credit card chargebacks provide consumers with protection against fraud or other illegitimate charges. However, they can be problematic for business owners, who can lose money with little warning.

The good news is that you can contest and reverse chargebacks. In this guide, we’ll explain everything you need to know about credit card chargebacks and how to reverse them.

What Are Credit Card Chargebacks?

Credit card chargebacks occur when a customer disputes a transaction on their credit card. They can dispute a charge for reasons such as the following:

  • Fraud
  • They were charged twice for a purchase
  • They never received a product or service
  • They received a low-quality or damaged product

When a chargeback occurs, the bank that issued the customer’s card will remove the funds from your merchant account. Most merchant account providers also charge a fee for each chargeback.

Refunds vs. Chargebacks

Importantly, chargebacks are distinct from refunds. If a customer wants a refund, they must follow your business’s refund policy and contact you directly to initiate a refund. Refunds are at your discretion.

Chargebacks, on the other hand, aren’t up to you. Customers can initiate a chargeback with their credit card issuer, and they aren’t required to contact you first to try to remedy the situation. It’s up to credit card issuers, not your business, to decide what situations qualify for a chargeback.

The good news is that you have a short window to contest a chargeback and have it reversed.

Note

If you get a bit turned around with credit card terminology, a good place to start is our article explaining what a credit card's CVV is and what it's used for.

How To Reverse a Credit Card Chargeback

While the circumstances surrounding every chargeback may differ, the process for reversing a chargeback follows the same series of steps every time.

  1. When a customer initiates a chargeback, the bank that issued their credit card will immediately remove the funds from their purchase from your merchant account.
  2. The issuing bank will contact you to ask whether you accept or dispute the chargeback. If you accept, the chargeback process ends here and the customer gets their money back.
  3. You need to provide evidence showing that the transaction was legitimate. Evidence could include receipts, photos of the product sold, and proof of delivery.
  4. The issuing bank will make a decision based on the customer’s claim and the evidence you provided. If the chargeback is reversed, the funds will be returned to your merchant account.

Importantly, credit card issuers require that you provide evidence to dispute a chargeback within a certain timeframe (usually 60 days). After this window expires, you can no longer contest the chargeback.

If the issuing bank rules in your favour, the customer can appeal the decision by requesting arbitration. This involves a more detailed review of the circumstances surrounding a transaction and usually involves the credit card network (such as Visa or Mastercard). The arbitration process can take several weeks or more.

Common Credit Card Chargeback Reasons

Most merchants would prefer to avoid chargebacks altogether rather than spend time disputing them. So, let’s look at the most common reasons why chargebacks occur and how you can reduce chargebacks.

Fraud

Fraud occurs when a customer’s credit card is used without their knowledge or authorization. Proactively identifying fraud is tricky, but there are several things you can do.

  • Use a credit card machine with an EMV chip reader. EMV chips are more secure than magstripes and more difficult to counterfeit.
  • Ask for a card’s expiration date and security code for online purchases.
  • Contact the customer directly to verify unusual or large transactions.

Shipping Issues

Many chargebacks occur because a product never arrived at a customer’s home or was damaged during shipping. Options for addressing shipping-related chargebacks include:

  • Shipping all packages with tracking and providing tracking information to customers.
  • Requiring a signature for package deliveries.
  • Adding additional packaging material to protect items in transit.

You may also consider purchasing shipping insurance for expensive items. This won’t protect you from chargebacks, but it will enable you to make a claim against the carrier if an item never arrives or arrives damaged.

Customer Doesn’t Recognize Your Business Name

Customers may initiate a chargeback if they don’t recognize your business’s name on their credit card statement.

This can be an honest mistake, but it’s more likely to happen if your business uses a billing identifier that’s different from the business name that customers see when making a purchase. If you can’t adjust your billing identifier, let customers know how your business will appear on their credit card statement during the checkout process.

Unclear Product Descriptions

Customers can initiate a chargeback if the product they receive is significantly different from what they thought they were getting. This is particularly prevalent in online sales, since customers rely on your product descriptions and photos.

Make sure that your descriptions and photos are clear, accurate, and up to date.

Verdict

Credit card chargebacks are great for consumers but problematic for business owners. If you’re faced with an incorrect chargeback, it’s important to provide clear evidence for why a charge is legitimate. You can also take steps to reduce chargebacks, such as using a tracked shipping service and updating your business’s billing identifier.

Frequently Asked Questions

How long do chargebacks take?
The chargeback process is usually resolved within 30 to 60 days from when a customer initiates a chargeback. As a business owner, you typically have up to 60 days to respond. The bank that issued the credit card will typically make a decision within a few business days.
How likely are merchants to reverse chargebacks?
According to a Chargebacks911 report, business owners successfully reverse chargebacks 32% of the time. This means that chargebacks are resolved in the customer’s favour more than two-thirds of the time.
What evidence do you need to win a chargeback?
The type of evidence you need to win a chargeback dispute depends on the reason for the chargeback. For fraud, you may need a copy of the customer’s ID. For shipping issues, you may need proof of delivery or the customer’s signature on a delivery receipt. You should always be able to provide proof of purchase and receipts.
Written by:
Michael is a prolific business and B2B tech writer whose articles have been published on many well-known sites, including TechRadar Pro, Business Insider and Tom's Guide. Over the past six years, he has kept readers up-to-date with the latest business technology, corporate finance matters and emerging business trends. A successful small business owner and entrepreneur, Michael has his finger firmly on the pulse of B2B tech, finance and business.