A chargeback is a transaction reversal initiated by the customer after a business or merchant has charged them for a product. It sounds like a refund, but it is different. Unlike a refund, where a merchant and a customer settle a payment dispute, customers contact their banks to file a chargeback. The bank then removes the funds from the business’ account and reverses the transaction.
Customers feel the need to request a chargeback for several reasons, including merchant error, friendly fraud and criminal fraud.
Merchant error occurs when there is a problem with the product delivered, failure to stop a recurring payment even after a customer has requested it, wrong shipping address etc.
For fraud, it is termed friendly when a customer knowingly makes a purchase and disputes a payment afterwards for no good reason. This also happens when a customer is at fault for a problem with the purchasing process and still goes ahead to dispute a payment. The majority of chargebacks are caused by friendly fraud.
Criminal fraud is when a criminal steals a person’s information and uses it to make purchases. Here, the original owner of the information then files for a chargeback.