The chargeback cycle is a series of interactions between several participants who are involved in the transaction of payment for any product or service. Mostly, an Ecommerce Store is involved with a customer when any chargeback cycle takes place.

Following are the stages of the chargeback process which will help you in understanding in details how it affects your Ecommerce Store:

1. The chargeback process begins with the cardholder disputing a transaction or contacting his or her card issuer with disputed information. This is the stage when the customer starts the chargeback process to reverse or refund back the amount from the relevant institution.

2. The card issuer electronically returns the transaction (charges it back) to the merchant bank through the respective credit card company (e.g. Discover or American Express) or association (Visa or MasterCard).

3. The credit card company or association reviews the eligibility of the transaction to be charged back and, if appropriate, forwards it to the merchant bank.

4. The merchant bank receives the chargeback and either resolves the issue or, if unable to do so, forwards it to the merchant.

5. The merchant receives the chargeback. If the merchant has a proof that the transaction is valid (e.g. a sales receipt), the proof is submitted (re-presented) to the merchant bank. If the merchant is unable to produce a proof, the chargeback may have to be accepted.

6. The merchant bank receives the represented transaction and sends it to the relevant credit card company or association.

7. The credit card company or association receives the represented transaction and, if appropriate, forwards it to the card issuer.

8. The card issuer receives the re-presented transaction and, if appropriate, re-posts it to the cardholder’s account. If the chargeback issue is not adequately addressed, the card issuer may submit a dispute with the credit card company or association.

9. The chargeback process ends with the cardholder receiving information resolving his or her dispute and may be re-billed for the item or receive a credit.

Customer Dispute Chargebacks

Chargebacks most often result from customer disputes when the customer asks for the refund or return of the payment made earlier for the product or services. A customer may dispute a transaction for a number of reasons but typically because:

• A credit has not been processed when the customer expected it would be.

• Merchandise ordered was never received.

• A service was not performed as expected.

• The customer did not make the purchase; it was fraudulent.

Chargebacks resulting from customer disputes may indicate customer dissatisfaction. To avoid the potential for lost sales in the future, merchants should make it a priority to identify and address their underlying causes.

If a customer with a valid dispute contacts you directly, you should act promptly to resolve the situation. Issue a credit, if needed, and send an email to the cardholder informing him or her that their account will be reimbursed. Such an action helps in avoiding the unnecessary chargeback considering that both the parties acknowledge the issue and resolves it among themselves. But many a times, this is not possible when the product or service has already been delivered.

To protect merchants and merchant services providers from frivolous customer disputes, the credit card associations have implemented sophisticated procedures that significantly reduce chargebacks and greatly improve the chargeback process. When an invalid chargeback is detected, it is automatically returned to the card issuer that originated it, and the merchant and merchant services provider never see it.

Many merchant banks also have implemented procedures that routinely review exception items, allowing them to resolve issues before a chargeback is necessary. Together, these systems ensure that any chargebacks that merchants receive are usually those that only they can respond to or that cannot be remedied in any other way.