What is Chargeback

What is Chargeback

A chargeback occurs when a cardholder disputes a transaction, and the amount is returned to their debit or credit card. This process serves as a consumer protection mechanism in the card payment ecosystem, allowing customers to request a refund when they believe a transaction was unauthorized or problematic. The option to file chargebacks builds trust and confidence in using card payments.

However, for businesses, chargebacks can be challenging. While intended to resolve genuine issues, many chargebacks are initiated by customers without contacting the merchant first or are used for reasons outside the original purpose. This often results in financial losses, operational burden, and reputational risks for merchants.

The good news is that merchants are not powerless. As chargebacks become more frequent, businesses are taking proactive steps to understand how the process works and how to defend against invalid claims. The sections below will guide you through the key aspects of chargebacks, what they mean for your business, and how to reduce their impact.

Differentiation Chargeback vs Refund

Differentiation	Chargeback	Refund
Who initiates	The customer, via their issuing bank	The Merchant
Process	The customer contacts their bank to dispute a transaction and reverse the charge	The customer contacts the merchant directly to request a refund
What happens to the fund	The disputed amount from the merchant’s account is placed on hold while the dispute is being reviewed and resolved	Once the merchant processes the refund, the funds are credited back to the customer’s refund preference account directly
Control	The bank initiates and controls the process; the merchant must provide evidence	The merchant has full control and can approve or deny the refund
SLA	It can take weeks or even months to resolve	Less than 14 work days - depends on the issuer
Fees	Can be up to USD 100 or more	None

Common Chargeback Reasons

Customers may request a chargeback for various reasons—some valid, others not. Often, instead of reaching out to the merchant for a resolution, the cardholder directly contacts their issuing bank. Understanding these common reasons helps merchants better respond and prepare for disputes:

1. Unauthorized Transactions or Fraud

2. Unrecognized Transactions

3. Dissatisfaction with the Product or Service

4. Product Not Received

5. Customer Changed Their Mind

6. Merchant Error The merchant charged the wrong amount or charged the customer multiple times. A refund was promised but not processed.

7. Friendly Fraud (First-party Fraud) The customer intentionally files a chargeback despite receiving and using the product or service. This type of fraud is difficult to detect and can cause significant losses for merchants.

Chargeback Liability

Chargeback can happen in Cards and QRIS Payment, learn who bears the risk below:

Payment Type	Liability
Cards 3DS	Card issuer
Card Non 3DS	The merchant bears full loss if the cardholder disputes fraud