What constitutes a chargeback?

Let's begin by considering the definition of "chargeback". A chargeback is a return of funds after a debit or credit card transaction, leading to either a credit card chargeback or a debit card chargeback. This begins when the customer disputes the charge with their bank or credit card issuer. Chargebacks are typically started by customers, though businesses can also request them, albeit infrequently.

The positive aspect of chargeback disputes is that the worldwide chargeback-to-transaction ratio generally reduces annually, indicating that there are fewer bank chargebacks per year relative to the total transactions. This can be linked to various factors that companies are putting money into, most of which we will discuss below.

The unfortunate reality- chargebacks remain a prevalent and expensive issue linked to fraud in business more generally. A report published by Juniper Research indicated that e-commerce companies were expected to incur losses of around US$20 billion in 2021 from fraud, marking an 18% rise from the US$17.5 billion lost in 2020. The True Cost of Fraud report by LexisNexis indicates that companies pay US$3.75 for each US$1.00 in chargebacks.

Chargeback vs Refunds

While both chargebacks and refunds entail the return of money, they differ significantly.

Typically, customers can request a refund straight from the merchant according to their refund policy. However, at times, the seller may deny the refund request.

The merchant might assert that the product was not damaged upon arrival or thinks the package was delivered as scheduled. If there is a disagreement, the customer could ask for a chargeback.

In a chargeback, the customer reaches out to the bank (rather than the business) to cancel the payment. The chargeback procedure requires more time and includes additional steps compared to a refund. Moreover, any costs linked to a chargeback are considerably greater than those of a refund.