What You Need To Know About Chargebacks, And How They Affect Your Business

However, theory and practice are two different things. There are several reasons why consumers circumvent the merchant and go straight to the bank to try and get their money back instead of going to the merchant first.

• Disputing a potential chargeback can be challenging for a cardholder as it requires time to dispute the charge with a customer service representative.
• Disputes with a merchant will most likely require a receipt, which many consumers may no longer possess.
• Consumers may use chargebacks to avoid a handling fee
• Chargebacks require less effort on behalf of the consumer than some refund procedures

However, by going straight to the bank, consumers can inadvertently plunge your business into a lengthy and costly financial dispute that could result in you losing money and stock.

Chargebacks are also vulnerable to being instrumentalised by fraudsters. Because a chargeback doesn’t require the consumer to return the product, fraudsters often purchase products and request bank chargebacks, walking off with your product and their money.

The chargeback process has several flaws that can destabilise a business:

• Whilst a consumer may be entitled to get their money back, if this happens, the consumer is not obligated to return the goods made under the original purchase, which could represent a significant loss for a business.
• Chargebacks circumvent merchants. In all likelihood, the merchant will never know about a bank’s investigation into a transaction unless the bank decides to award a chargeback to a customer and money is taken out of their business account.
• Chargebacks impose a fee on merchants between £20 – £100. 
• Even if the chargeback is cancelled, merchants can still be left with an administrative cost.
• Merchant acquiring banks can increase the chargeback fee if multiple chargeback claims are made against a vendor.
• While merchants have the right to dispute chargebacks, crafting an effective dispute takes a significant amount of time and effort.
• Whilst chargeback dispute services are available for businesses, these services are an expensive option.
• While merchants can dispute illegitimate chargebacks, this process is costly, taking time, effort and money.
• While there are services that help businesses contest chargebacks, these services are costly and not without the risk of failure.