How to Identify the Types of Chargebacks

The relatively recent growth of e-commerce has led to an increase in online credit card transactions. This, in turn, has resulted in a proportionate rise in the number of chargebacks. Credit card charge reversals happen for many reasons, but some types of chargebacks are more common than others. To understand and identify the different types of chargebacks, follow the steps below.

Instructions

Difficulty: Moderate

1. Find out who initiated the chargeback. Was the process started by the cardholder, the bank or the merchant? This information indicates which of the three broad categories the chargeback falls into and will help you further break down chargebacks into their various types.
2. Determine whether a chargeback initiated by the customer results from a verifiable customer claim. Some claims that can be verified by impartial evidence are duplicate processing of a charge, a non-matching account number, inaccurate calculation of charges and item not as described. Some harder-to-substantiate customer claims might be unauthorized charges, non-receipt of merchandise, receipt of damaged merchandise or services not rendered. Customer-initiated chargebacks are made through the credit card company and can either precede or follow attempts to negotiate with the merchant.
3. Identify whether a chargeback that was initiated by the merchant resulted from a previous error recognized and corrected by the merchant. Some examples are merchandise overcharge, wrong item charge or incorrect quantity entered during invoicing. Other possible scenarios causing merchant-initiated chargebacks might be discontinued merchandise, order cancellation or unavailable merchandise. Though some of these chargebacks may be requested by the customer, they differ from customer-initiated chargebacks in that they are completed by the merchant, rather than by the credit card company.
4. Decide whether a chargeback initiated by the bank resulted from a routine transaction, such as the cancellation of a recurring charge. Other, non-routine, reasons for bank-initiated chargebacks include the following: the transaction was completed after authorization had been denied or local, state or federal law required the card issuing bank to credit the cardholder's account due to the merchant's failure to successfully dispute the chargeback.
5. Study all the written documentation and other pertinent evidence to determine which of the following categories best describes the chargeback: routine transactions, transactions based on human error, true fraud (perpetrated by someone other than the cardholder), friendly fraud (perpetrated by the cardholder) or questionable/illegal merchant actions. Fraud, particularly friendly fraud, can be one of the most difficult chargeback types to identify and prove.