What is a chargeback in credit and debit cards and how does it work?
Source: Live Mint
Picture this: you’re browsing your favourite online store when you spot a great deal and make a quick purchase. Days later, a different product arrives. The platform assures you that the right product will be delivered soon, but weeks pass without an update. You reach out to the seller, but your emails are unanswered. Frustration sets in. Have you just lost your money? This is where the chargeback feature of your debit or credit card can be useful.
What is a chargeback?
A chargeback is a debit or credit card transaction that’s reversed by the cardholder’s bank after they dispute a charge on their account. This can be for anything from undelivered goods and billing errors to outright fraud. When you initiate a chargeback, your bank steps in to ensure your hard-earned money isn’t lost. But how exactly does the process work?
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The first step is identifying the issue. Maybe you were double-charged for a meal or paid for a service that was never delivered. Once you notice the problem, you can raise a chargeback request via online banking or by calling your bank’s help line. While the process applies to both credit and debit cards, the deadline to raise a chargeback request can vary from 60 to 180 days, depending on your bank’s policies.
When can you request a chargeback?
Most banks require you to contact the merchant and attempt to resolve the issue directly before requesting a chargeback. After you submit your request, the bank checks if it is valid. If it is, the bank provides you with provisional credit – essentially a temporary refund.
Simultaneously, it informs the merchant’s bank, which then debits the amount from the merchant and charges them a fee. The merchant can either accept the chargeback or contest it by submitting evidence, such as confirmation of delivery. The bank then reviews the evidence before deciding whether to uphold or reverse the chargeback.
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However, there are crucial terms and conditions to keep in mind before raising a chargeback. Buyer’s remorse or dissatisfaction with a product that matches the advertised description aren’t valid reasons, for instance. Every bank also has limits on the amount eligible for a chargeback, and high-value transactions may require additional scrutiny.
How is a chargeback different from a refund?
The chargeback process is more complex than a simple refund and offers significant protection. Unlike refunds—which involve only you and the merchant—a chargeback engages multiple parties, including the issuing bank, payment gateway and card network, making it a more robust safeguard against fraudulent or disputed transactions.
For merchants, chargebacks come at a cost: not only do they lose the transaction amount and product, they also pay a fee and risk damaging their reputation. High chargeback ratios can lead to penalties or even losing the ability to process card payments.
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To avoid unnecessary disputes, it’s important to document your claims clearly and submit supporting evidence promptly. While the chargeback process may seem daunting, it’s an invaluable safety net that can ensure your financial security. Misusing chargebacks can harm merchants and cause your request to be denied, so always use this responsibly.
