What is a chargeback? Types of chargebacks

A chargeback is a claim of a transaction made by the issuer of the credit card against the merchant number that has been provided by the acquiring bank. There are three types of chargebacks and they can be classified as legitimate, illegitimate and fraudulent.

Types of chargebacks

Legitimate chargebacks

Legitimate chargebacks are those caused by merchant error, without intentions to commit fraud. For example:

• the merchant forgot to send the product or service;
• the product that was sent arrived defective;
• the merchant has charged twice the same transaction;
• the product description from the website does not match reality;
• the merchant has charged a higher amount due to software error.

As you can see in these cases, the merchant does not intend to commit fraud and the customer with a simple e-mail or phone call can claim the transaction and the merchant will make the refund or will find another way to compensate the client.

Illegitimate chargebacks

Illegitimate chargebacks can be filed when the merchant intends to commit fraud against the card holder and as a result, card issuer entity. This type of chargebacks is highly persecuted by banks and generally leads to the closure of payment gateway. The most common cases of illegitimate fraud actions are:

• the merchant charges much higher amount than the real price of the product;
• the merchant charges the client without authorization;
• the merchant receives an order and the payment but chooses not to send the product to the client;
• the merchant sends a defective product on purpose.

These types of chargebacks are less common and the most difficult to detect. It is also very important to keep in mind that one of reasons why these chargebacks take place is due to misunderstanding, when one family member makes a purchase with the card of another one without informing him. As a result, the card holder sees an unauthorized payment and files the chargeback.

Fraudulent chargebacks

Fraudulent chargebacks are the most common chargebacks on the Internet. They take place when the customer receives the product in perfect conditions, as described on the web, gets charged the correct amount and on the other hand the merchant fully complies with its obligations. However, the client files the chargeback and states that he did not receive the product, an act whose only purpose is to keep the purchased product or service without paying for it. In this case, it is very important for the merchant to justify before its acquiring bank that it has acted according to the regulations and fully complied with its obligations against the client. The forms of justifying it are:

• presentation of the tracking number;
• recorded conversations between the merchant and the client;
• e-mails and documents with the process data.

Chargebacks is one of the major problems the merchants face nowadays. High percentage of it can lead to big losses for your company and the closure of your payment gateway. Therefore, it is very important for any company who uses Internet as a sales channel to create and establish a strong anti-chargeback policy in order to minimize the possibility of facing the losses they cause.