What is a chargeback?

A chargeback is the payment returned to a customer after they dispute a charge. A chargeback occurs when a customer contacts their bank or credit card issuer to dispute a charge on their account and requests a refund. Chargebacks and disputes are often talked about together. Not every dispute will result in a chargeback, although many do.

Chargebacks typically occur when the customer spots a charge on their bank or credit card statement that they either don’t recognize or are unhappy with (never received the product, received a damaged or defective product, promised service was not rendered or significantly delayed, higher than expected cost, payment card was used without permission, etc.).

The bank or credit card issuer may attempt to gather more information from the customer to determine if a chargeback is appropriate. In most cases, if the customer insists, the bank will proceed with the chargeback. They will usually issue a provisional credit to the customer and contact your acquiring bank to notify them of the chargeback and forcibly initiate a transfer of money back from the account.

If you accept the chargeback, ignore it, or fail to contest it with the right evidence, the chargeback will be finalized and the transaction will be fully issued to the customer.

The bank or credit card issuer automatically withdraws the money when a chargeback has been filed. Customers have up to ~120 days (depending on the bank/card issuer) after a transaction to dispute a charge and request a chargeback.

The quickest, most effective way to prevent chargeback losses is to lean on the relationship with your customer and have them drop the dispute.

If you are unable to work it out directly with your customer, the second best approach is to submit evidence to fight the dispute if you feel the chargeback is unmerited. If you know you’ve fulfilled your obligation to the customer, delivered on goods/services, and have proof, you may be able to recover your lost payment. This is called chargeback representment.

The card network gives you 20-30 days, depending on the card, to submit the evidence that shows why the transaction should be upheld as valid.

If the bank reviews the evidence and finds that your transaction with the customer was processed and authorized properly, the money will be returned to your bank account.

Shopmonkey partners with you through the chargeback process. We notify you as soon as we hear that a chargeback has occurred. Every chargeback tells a story, and sometimes those stories are complex and convoluted. We will help submit the evidence on your behalf and give suggestions for other pieces of evidence that may help clarify or strengthen your case.

When fighting a chargeback, strong evidence will help avoid ambiguity with hard-to-decide cases.

Check out our help article Best Practices: Be Prepared for Disputed Charges for more precautionary measures to include in your workflow in case a customer files a dispute in the future, including:

Attentive and proactive customer service can be a great way to prevent chargebacks from happening in the first place. When a customer knows they can get help from you when they’re dissatisfied with a purchase, they’re less likely to take the complaint straight to their bank.

If the bank reviews the evidence and finds that the transaction was processed and authorized properly, the money will be returned to your bank account. If not, they will uphold the chargeback and the funds will not be recovered to your account. This review from the bank can take up to 75 days.

This is not necessarily the end of the chargeback process. Banks, customers, and yourself can appeal to the card network for arbitration in the event of an unsatisfactory decision. This will incur more fees and the card network’s decision will be final.

You can advance the process to pre-arbitration if the bank isn’t satisfied with your representment. And if that is not resolved your last and final step is arbitration and that decision is binding without the option for appeal.

The chargeback fee is intended to cover chargeback-related costs accrued by the bank. Fees may vary depending on the card network, the banks and payment processors involved, and other factors. The standard chargeback fee is $15 on top of the refunded chargeback amount.

If you have taken the process to arbitration and failed to reverse the chargeback, when all fees and attendant costs are factored in, every dollar lost to a chargeback costs your shop an estimated $2.40. In other words, if you sell a product for $100 and the customer succeeds in disputing the charge and receiving a chargeback after arbitration, you’re not out $100—you’ve effectively lost $240.

If your Shopmonkey Payments account includes an outstanding negative balance, caused by authorized refunds or from the chargeback caused by your customer’s disputes, the negative balance must be resolved to avoid any potential interruption in your service.

We will partner with you to find the best solution and sincerely aim to help you maintain your Shopmonkey services without interruption. We do have to adhere to our business procedures, which are laid out in the terms of service when using Shopmonkey Payments. The potential outcomes of outstanding negative balances include but are not limited to:

We are here to help! Feel free to reach out to the Risk Department at risk@shopmonkey.io and the Dispute Team at disputes@shopmonkey.io.

*We provide integrated payments - we do not provide business advice or legal advice.