Chargeback Process

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In this article, we will cover –

What is chargeback? How is it different from a refund?

What are some of the common reasons for chargeback & how can I avoid a chargeback?

What is chargeback? How is it different from refund?

A chargeback is a process that allows a customer to dispute a card/UPI transaction and have the money returned to them. It is usually initiated by the customer and involves the bank reversing the transaction and taking the money back from the merchant. There can be multiple reasons for a customer to dispute a transaction i.e goods/services not received, transaction failed but amount deducted, duplicate transaction etc. This entire process is managed and supervised by the Payment Networks like Visa, MasterCard and NPCI, the processes are same across industry. Chargeback is a process whereby a customer disputes a payment on their statement. Whereas, refund is repayment of a sum of money to a customer’s account. Refund can be initiated with or without the issuance of a chargeback.

The chargeback cycle is depicted below:

Once a customer disputes (Chargeback) a transaction, the Network debits the merchant entity (plural in this flow) and credits the customer’s bank. 

  1. Merchant does not provide the required documentation - Merchant generally gets a definite time to provide necessary documents. In the event that the merchant doesn’t provide proof of product/service delivery, the case will be closed against the merchant. Note – any documents shared by merchant after the timeline will NOT be accepted by the bank and case will close in favor of the customer.
  2. Merchant provides documents within a timeframe – the documents will be forwarded to the acquiring bank. The bank chargeback team reviews the documents, and in the event the documents are in line with the network chargeback guideline, it will be forwarded to the customer’s bank. If the documents are not valid/complete to defend the chargeback, acquiring bank will reject the documents and close the case in favor of the customer.
  3. Documents accepted by Acquiring bank –Once the documents are accepted by acquiring bank, bank will forward the documents to the customer’s bank via network (Visa, MasterCard, Rupay, NPCI)
  4. Documents reviewed by the Customer’s bank - Customer’s Bank reviews the document and either accepts or rejects the documents. Network (Visa, MasterCard, NPCI) provide 45 days from the date of document submission by Merchant bank to the customer’s bank to either accept or decline such documents.
  5. Documents accepted by customer’s bank – In case the documents get accepted by the customer’s bank, and customer doesn’t re-dispute the transaction, case gets resolved. However, if the customer’s bank doesn’t communicate their acceptance to the Merchant’s bank, the Merchant’s bank has to wait till the rejection period of the customer’s banks gets over. Acquiring bank keep the transaction amount on hold and only credits back to the merchant after this period is over.
  6. Documents rejected by customer’s bank - In case the Customer’s bank rejects your documentation, they raise 2nd chargeback. You will be given clarification as to why the documents were rejected, and you shall provide pointed response and evidence to decline the 2nd chargeback. You have the option to accept the chargeback at this level too.
  7. Re-Dispute of Transaction (Pre-Arbitration) – In the event of re-dispute, merchant will be required to address the updated rejection reason and provide fresh evidence to decline the redispute.

What are some of the common reasons for chargeback and how can I avoid a chargeback?

Some of the common reasons for chargeback from customers are i) Non-receipt of Product/Services, ii) Customer charged twice for the same service or product / Duplicate processing, iii) Customer received the goods in damaged condition, iv) Customer returned the goods, but credit never issued and v) Customer never authorized the transaction.

Follow the below mentioned best practices to avoid chargebacks from customers:

  1. Ensure products delivered as within timelines.
  2. Any delay on service/product fulfillment, communicate the same to the customer immediately.
  3. Please address any customer grievances immediately.
  4. Please ensure your return and refund and product support policy is appropriately displayed to the customer through the store policies.
  5. Do not delay refunds, please immediately process the refund, and communicate the refund details to the customer asap.