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What happens when a merchant gets a chargeback

Imagine your surprise at the end of the month when your debit or credit card statement arrives and you don’t recognise a transaction on it.

What do you do? Do you approach the merchant directly or can you go to your bank to dispute the faulty service or products and services you paid for but either didn’t receive, or found to be in poor working order?

This blog post is about these situations where customers can approach banks for “refunds” from merchants instead of approaching the merchant directly for such a refund.

Find out more below.

What is a chargeback?

A chargeback is a type of fee that is returned to a customer by the customer’s bank in several circumstances including, but not limited to:

  • In the event of technical or administrative errors such as the processing of a single purchase twice
  • When customers claim that they haven’t received a good or purchase as promised, or
  • When customers claim they didn’t authorise a particular purchase

How does the chargeback process work?

A customer makes a purchase for a good or service, but for whatever the reason, this product or service isn’t delivered or isn’t delivered in the correct quality.

Instead of seeking a refund directly from the merchant from whom the purchase was made, the customer approaches their bank for the return of the funds which they’ve paid.

In such a situation, the bank will withdraw the funds from the merchant’s account and also charge them fees for this. 

The merchant can dispute the chargeback within a certain period of time, depending on whether he or she is dealing with a Visa, Mastercard or American Express card, and use the “clawback” process to get the funds back into their account.

In the UK, this situation is similar to the use of Section 75, but Section 75 is considered a legal process, whereas chargebacks aren’t. 

Furthermore, Section 75 procedures refer to specified sums of money, up to 30,000 GBP with a minimum threshold of 100 GBP. On the other hand, chargebacks can be applied to purchases as low as 10 GBP (for Mastercard).

What are the consequences of chargebacks for merchants?

For merchants, dealing with chargebacks can be a time-consuming process that not only costs them additional funds in various fees related to the chargeback process, it also means money is taken out of their account to compensate the dissatisfied consumer. 

This is a precarious situation for the merchant, who ultimately doesn’t wish to see any sale fall through. 

This is a strong incentive for them, therefore, to consider offering better quality products and services, ensuring that they do not dissatisfy their customers.

What are the consequences of chargebacks for consumers?

Chargebacks are a way for customers to get their money back in the event that they did not authorise a transaction, or the products or services which they purchased either did not arrive or were not delivered, or they were of a poor quality. 

This is a direct method of recourse to their bank to initiate the refund, although this is not technically a refund as it’s not directed at the merchant first. 

One of the benefits of this for consumers is that they have a conflict resolution method in the event of an uncooperative merchant or one which has gone under administration or has gone bottom up.

In conclusion….

No merchant would like to be in the position of chargebacks being taken from their account, or to initiate a clawback procedure to fight against chargebacks.

And it’s also unlikely that there are customers who wish to receive a poor service or product, or even a no-show. 

That’s why chargebacks were implemented – to help customers in the event of a misused card or a poor purchase. 

While these methods are helpful, they are costly to the merchant and it’s in their best interest to avoid situations where their customers will be left dissatisfied. 

This is the ideal time for excellent customer service and a solid product offering.

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