Types of Chargebacks

Overview

As you might know, chargebacks are the security measures in place, for safeguarding a customer from frauds. But it is not as easy as a refund either, and has more parties included than a normal transaction between a seller and a customer. Chargebacks are basically called upon when a customer believes that they have been wronged by a merchant, by not holding up their end of the deal. In a very basic sense it could be due to a variety of reasons like faulty goods, unsatisfactory service, no product or service exchanged, or perhaps a subscription extended without consent. So things can be complicated in each different case. Still Card providers like Visa, Mastercard and Discover have come up with some categories and named them as reason codes. These help identify the context for a chargeback requested.

Chargeback Types based on Situations

There are 3 basic types in which chargebacks are categorized, based on the situation, and who might be at fault. These are based on, Fault of cardholder or their family and friends, Fault of friends/family or stolen card and Merchant Error. Let’s look at them one by one, and understand what constitutes what.

Fault of Cardholder

This type is basically a situation in which a customer has got the products, but acts like he hasn’t in order to use something for free. This could be a mistake on their part too like they haven’t checked every mailbox or wallet. But in this case, a person would try to circumnavigate around the merchant and directly apply for a chargeback with the issuer bank. 

Fault of cardholder’s friend/family or Stolen Card

This is a type of situation which arises basically from two situations – Either your card is stolen, or someone you know has used your card without your knowledge. Either way, what happens is someone makes a purchase from a merchant, using your credit card. You are unaware of this transaction, so you report it, and request a chargeback. In case your card was stolen, then this is a legitimate concern. But if someone you know had used the card, and you file a complaint, then it could be considered a crime on your part, if you try to get a chargeback, when in actuality a legal transaction has taken place, and they are received in your home only, or by your family or friends only. In this case, if the money is charged back, you are basically accompanying the fraudster. And you and your friend might be in trouble, so caution should be used.

Merchant Error 

This is arguably the most common type of chargeback that comes up in the market. Good businesses are always trying to avoid them, by training their staff well, making sure their offering isn’t lacking in any of the agreed terms. But the most commonly reported problem that arises, is with unwanted recurring payments and authorization errors. Basically what happens is a merchant mistakenly keeps sending payment requests even though the subscription or EMI has been finished or cancelled. This might not be a malicious attempt to rob people, but the end result is the same and people can easily win these chargebacks, especially if an audio confirmation was also taken or a digital record is kept of canceling the subscription of services. Also, authorization errors are common, when the same authorization sends multiple payment requests, and isn’t completed even after the customer has made the payment. It happens because the authorization isn’t complete and mistakenly keeps asking for the same deposit again and again.