What is a chargeback ?
A chargeback is a payment dispute procedure initiated by a customer with their bank after a payment made by credit card.
Chargebacks can be triggered for several common reasons :
- Fraud : the cardholder did not authorize the transaction.
- Product or service not delivered : the order was never received.
- Non-compliant or defective product : the delivered item does not correspond to the description or has a defect.
- Cancellation or refund not processed : the customer cancelled their order but has not been refunded.
Chargeback is a procedure for recovering funds, which protects consumers, but represents a major financial and operational challenge for merchants.
How does chargeback work ?
The chargeback process is as follows :
- Customer request: The customer contacts their issuing bank to dispute a transaction, whether it is unauthorized, non-compliant, or problematic.
- Bank opens case: The customer’s bank notifies the payment service provider used to process the payment, which immediately withdraws the funds from the merchant’s account.
- Notification to the merchant via the PSP: The PSP informs the merchant of the dispute.
- [Optional] Merchant dispute: The merchant can dispute the customer’s request. In this case, they transmit the required documents (invoices, proof of delivery, order confirmations, correspondence with the customer) to the cardholder’s bank, via the PSP.
- Payment of chargeback fees:
- If the customer’s dispute is accepted, the transaction amount is refunded. The merchant is charged a chargeback fee, which varies depending on the bank and payment service provider (PSP).
- If the customer’s dispute is rejected, the funds are returned to the merchant.
- Case closure and follow-up : the PSP keeps a complete record of the process, allowing the merchant to manage chargeback statistics.
Good to know: The customer has 13 months to dispute a payment made within the European Economic Area.
Chargeback : what are the impacts on the business?
Le chargeback a des conséquences directes sur la santé financière et la croissance des entreprises.
- Impact on cash flow: each chargeback results in fees and a temporary or permanent withdrawal of funds, which can unbalance cash flow.
- Impact on payment acceptance rates : A high number of chargebacks can lead payment service providers (PSPs) and banks to apply restrictions and/or additional fees, or even refuse certain transactions, thus reducing their ability to collect payments efficiently. The PSP may also terminate the contract, which in most cases specifies a chargeback limit that must not be exceeded.
- Impact on brand image : customers and partners may perceive a high volume of disputes as a sign of insecurity or unreliability, affecting the company’s reputation.
Chargeback vs. refund : what’s the difference?
Chargebacks and refunds follow different logics, with distinct impacts for businesses.
- Chargeback : This is initiated by the customer with their bank, without going through the merchant. It incurs fees, requires processing time, and can impact metrics for payment service providers (PSPs) and card networks.
- Refunds: These are initiated at the customer’s request, either directly to the merchant or by the merchant themselves. The merchant then submits the request to their payment service provider (PSP). Refunds are processed smoothly, without penalty, and help maintain the customer relationship.
Mastering this distinction helps companies to better manage disputes and reduce challenges to their business.
How to reduce and prevent chargebacks ?
To reduce its chargeback rate, the merchant can combine several actions:
- Implementing secure payment processes : using strong authentication, fraud detection, and real-time controls limits unauthorized transactions. Secure payments automatically reduce bank disputes.
- Improving the customer experience: clarifying sales conditions, delivery times, and refund policies prevents disputes. A smooth process and responsive support encourage customers to request a refund rather than contest a transaction.
- Monitoring and analyzing disputes : identifying recurring reasons for chargebacks allows for process adjustments. Data analysis helps to correct points of friction and anticipate risks.
- Role of prevention tools : Payment service providers offer reporting and alert tools. These also allow for blocking risky transactions, centralizing disputes, and reducing chargeback rates.
Reduce your chargeback with CentralPay
CentralPay helps businesses control and reduce their chargeback rates through a comprehensive approach to online payments.
- Upstream transaction security: transaction security is at the heart of the CentralPay payment solution to limit risky transactions.
- Complete payment traceability : every transaction is tracked and recorded. This traceability facilitates the justification of disputed payments to banks and strengthens defenses in the event of litigation.
- Centralized dispute and workflow management : payments and claims are handled from a single interface. This centralization improves responsiveness and reduces chargeback processing times.
- Réduction des erreurs et incompréhensions clients : des parcours de paiement clairs et des libellés explicites limitent les contestations liées à une mauvaise reconnaissance de la transaction.
- Sequestration of funds : CentralPay temporarily isolates funds for a defined period in order to manage legal deadlines, delivery conditions, withdrawal rights and handle disputes before redistribution.
By combining prevention, visibility and control, CentralPay sustainably reduces chargebacks and protects the financial performance of businesses.
