What is a Chargeback and How to Dispute Credit Card Transactions

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10 MAY, 2024

A bank chargeback happens when you ask your credit card company to reverse a transaction and return the funds used for a purchase. You may request a Kotak credit card chargeback when an item you purchased never arrives, the seller double-charges the due amount or they fraudulently charge you. When you file a chargeback dispute for a purchase, Kotak Mahindra Bank evaluates and reverses the charge and reimburses you by debiting the amount in your account.

As a credit card user, a chargeback is the most significant weapon in your arsenal to resolve disputes and fraud. Therefore, understanding the chargeback meaning is important. Here is an overview.

What is a Chargeback?

If we define chargeback, it is the bank's action to reverse a payment to initiate the dispute resolution process. Generally, these issues arise between merchants and customers or credit card issuers. However, many times, they issue against customers, such as an erroneous ATM deposit.

Usually, it is the process of reversing a payment during billing errors, failed product or service delivery, or unauthorised credit card usage. Savvy credit card companies often use this term to dispute credit card charges, receive account credits, and take back the disputed amount from the merchant.

How Do Chargebacks Work?

Here is how the chargeback process works:

You identify an invalid transaction and request a credit card chargeback from the issuing bank.
The issuing bank evaluates your claim and determines whether you have a valid reason to initiate the interim chargeback credit. If the issuer finds it invalid, they will not go further and provide any chargeback. However, most issuers give the benefit of the doubt to their customers and allow chargebacks, provided that their dispute is one of the approved reasons.
The issuer provides provisional credit equivalent to the disputed amount and notifies it to the seller’s acquirer. Once the acquiring bank receives the notification, they debit the amount to the merchant’s account and charge them the chargeback fee.
The acquiring bank notifies the merchant, after which the merchant decides whether to fight or accept the interim chargeback credit.
If the merchant decides to fight, they submit a rebuttal letter to dispute. The issuing bank then evaluates the evidence and upholds or reverses the chargeback.

How to Dispute a Chargeback?

Now that you know what a chargeback process is, follow these steps to dispute a bank chargeback:

1.Gather information

If you suspect a purchase, gather the transaction details from your credit card statement and submit a chargeback request. The credit card company will require evidence, such as purchase receipts or communication with the merchant, to resolve a chargeback dispute.

2.Submit your chargeback response.

The card company sends the request details to the merchant. If the merchant disagrees, they submit their side of evidence to the credit card company. The issuer reviews both sides and decides to authorise or deny the chargeback.

3.Await the decision

The chargeback dispute ends if the merchant accepts the chargeback, the customer cancels the request, or the credit card company goes for further arbitration. The outcome may take a while, during which you must await the decision.

What are the Reasons for Chargebacks?

After understanding what is a bank chargeback, it's essential to know the possible reasons for a chargeback request. These include the following:

Unauthorised Use or Fraud: If someone uses your credit card without your permission to purchase a product or avail of a service.
Wrong Goods or Services Delivered: If the goods or services you receive differ from what you expected.
No Delivery of Goods or Services: You paid for a product or service, but you never received it.
Non-Processing of a Return Credit: You returned a product or cancelled service but never received its refund.
Stopped Bill: If you stopped a bill payment or discontinued a recurring subscription, but the payment did not stop.
Incorrect Amount Charged: If the amount the goods or service provider charged was wrong.

How to Request a Chargeback?

In the case of a dispute, the first step is to request a refund from the merchant. If that does not work, they must formally request a chargeback. Here is how the process goes:

You file a chargeback request.
The credit issuer reviews the dispute and decides if the request is valid.
The issuer passes your request to the card network if it is valid. In the meantime, they provide you with a temporary credit.
After reviewing the transaction, the card company refunds your amount or sends the request to the merchant’s acquiring bank.
The acquiring bank sends the dispute to the card network or the merchant.
If the merchant accepts it, they pay the transaction; otherwise, dispute the chargeback.
Finally, the card network decides who should pay. Upon completing the credit card dispute process, the temporary credit in your account becomes permanent.

Difference Between Chargeback and Refund

Let’s look into the difference between chargeback vs refund:

Parameter	Refund	Chargeback
Parties Involved	The customer and the merchant	Merchant, customer, issuing bank, payment gateway, and acquiring bank
Who Initiates it?	The merchant	The customer, through bank
Cost to the Merchant	Lost item, lost sale, processing fee	Lost item, lost sale, processing and admin fee, reputational damage, impact on the chargeback ratio
Result for the Customer	The cost of the transaction recovered	Cost of transaction recovered, retain the item if received
Time Required	Quick and easy to execute	Take more time, effort, and knowledge of the complex processes
Complexity	Needs minimal skills to request refunds	Needs extensive knowledge of the chargeback processes, regulations, strategies, and expectations

Conclusion

With the evolving ecommerce technology, new threats also appear daily. The facility of bank chargeback is one of the most important benefits of purchasing things with a credit card. You can file a chargeback dispute to resolve any billing errors if an issue arises. Knowing what is refund and chargeback makes you a savvy consumer. Now that you understand what the chargeback process is, fight for your rights and safeguard your finances by minimising the risk of loss.