Chargeback Definition

Merchant Account Chargebacks | PayFrog

Which chargeback definition are you looking for?

What is the official chargeback definition? Well, there are a few kinds of chargebacks so there are several definitions! We have provided a simple definition, explanation, and an example for each kind for you below.

chargeback definition dictionary

True Chargeback Definition

This is the simplest and most common type of return. The true chargeback definition is a reversal of a prior transaction that results in the reimbursement of a customer’s funds. It is a cardholder’s last line of defense against credit card fraud. If their information or physical card is stolen and used for a fraudulent purchase, the cardholder will notify the card-issuing bank, and the bank will return the funds to the account. While the cardholder is originally out of funds when the fraudulent purchase is made on the card, ultimately it is the merchant business that will pay for it when the chargeback occurs. Many card processing companies have chargeback fees, and will even cancel your account if too many chargebacks occur.

chargeback definition card

Chargeback Fraud

You may be thinking, “How do I know if it was a fraudulent purchase?”. Realistically, some customers report a transaction as a fraud when it was legitimate. The customer just wanted their bank to pay for the transaction.  This is known as chargeback fraud and can be prevented with the right card processor. As a business, you have 2 defenses against this.

  1. Transaction Information
  2. Documentation

Transaction information includes the verified billing address and approved CVV Code. Documentation encompasses a signed customer receipt or contract, proof of product/service delivery, and other records such as notes from customer interactions or email exchanges.

Friendly Chargeback Definition

A friendly chargeback occurs when a customer honestly thought a purchase was fraudulent but was mistaken. Sometimes they don’t recognize a purchase or a family member used their card without their consent. An EMV terminal can prevent this by showing the customer their signature for the suspected fraudulent purchase and comparing it to the signature on the back of their card.

chargeback definition - friendly chargeback protection

How to Avoid Chargebacks

Winning a chargeback dispute is a long process for the customer, and a headache for the business as well.  Some good practices to follow to avoid chargebacks all together are:

  • Partner with an EMV-certified provider to ensure every chip card is properly read and has a verified signature attached to it.
  • Make sure your customers swipe magstripe cards or insert chip cards to prevent accidental chargebacks (our Smart EMV terminal does this for you)

chargeback definition cards

  • Make sure your card processor has CVV and AVS protection measures for card-not-present keyed-in transactions

Now that you know the official chargeback definition, where on Earth can you find a processor that provides all of the necessary features to prevent it? Visit PayFrog to find out!

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