What is a credit card chargeback?

on Mar5
credit card chargeback
Written by
James Davis
Written by James Davis
Senior Technical Writer at United Thinkers
Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more
credit card chargeback
Reviewed by
Kathrine Pensatori
Product Specialist at United Thinkers
Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

A credit card chargeback is one of the customer protection means. Credit card chargeback is a dispute between a cardholder and a merchant over a certain amount of money, happening when the cardholder believes that the money has been charged illegitimately or by mistake (for products or services he or she did not purchase).
Credit card chargebacks are an important issue to be considered by all merchant services industry players. A merchant should remember that if more than 1% of processed transactions result in chargebacks, the merchant account is terminated. An underwriter should remember, that it bears financial liability for its sub-merchants, so, in this case, it is the underwriter who carries the burden of chargebacks, issued by sub-merchants’ customers.

How can merchants deal with credit card chargebacks?

The merchant company needs to get chargeback information delivered to it as soon as possible, identify the chargeback, and dispute it, if necessary. If the volume of transactions processed by a particular merchant is large, it makes sense to automate the whole process of credit card chargeback handling. More information on credit card chargeback handling can be found here.

What is credit card chargeback fraud and how can businesses prevent it?

Customer fraud related to credit card chargebacks involves fraudsters who use stolen credit card numbers to purchase products and services. Merchant chargeback fraud happens when a fraudster (who has a merchant account) obtains multiple account numbers (for instance, from some database), processes transactions using these stolen cards, and disappears, once his bank account gets funded.
Mechanisms, generally used for credit card chargeback fraud protection, include verification of account-related data, such as geographical location, address, card code, and others. Underwriters can hold special chargeback reserves to cover chargebacks, issued by their sub-merchants’ customers.
More information on chargeback fraud protection can be found here.

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