What’s Really Involved When a Customer Files a Credit Card Chargeback Claim?

Ecommerce merchant account

If you own and run your own small business, you already know how frustrating credit card chargebacks can be. But if you’ve recently opened your business and you’ve never had experience dealing with secure payment systems before or if you’ve recently updated your credit card payment system and you don’t quite understand all the details behind the credit card chargeback process, here are the basics of what happens:

  1. After a charge has been made a consumer’s credit card or debit card, he or she can file a chargeback claim with the issuing bank. The issuing bank is the bank or lending institution that provided the card initially.

  2. The issuing bank will require the cardholder to explain what happened, and there’s typically a period of negotiations and assessments where the issuing bank decides whether or not the claim is valid and should be fixed.

  3. If the bank decides that the claim is not valid, the matter is dropped and the consumer is required to cut their losses. If the claim is valid, the bank will proceed by giving the cardholder credit back for the purchase, and then the bank contacts the issuing bank that services the merchant who made the transaction.

  4. If the merchant bank decides that the claim is invalid, the chargeback will be declined and the consumer’s issuing bank will be forced to pay the balance.

  5. If the merchant bank decides that the claim is valid, it will contact the merchant and charge them the amount of money that was erroneously placed on the consumer.

  6. In the case of technical or processing errors in the credit card payment system and the consumer actually should have to pay (rather than the merchant having to pay), a similar process will happen again in reverse.

As you can probably tell, the entire chargeback process is incredibly complicated. A chargeback claim has to go through many different parties, and even if the merchant in question ultimately isn’t found guilty of any wrongdoing, there are still processing fees that must be paid.

Chargebacks will naturally occur to businesses of all sizes and in all industries, but the best way to protect your business is to invest in secure payment solutions with merchant chargeback protection.