A chargeback is a reversal of a credit card transaction initiated by the cardholder’s bank, typically due to disputes such as fraud, non-receipt of goods, or dissatisfaction with a product or service. This process is designed to protect consumers but can have significant implications for merchants. At CB-Alert, take pride offering chargeback management services and have over 10 years of experience in the industry. Understanding key terms related to chargebacks and payment processing is essential for effectively managing and preventing disputes. Here are some fundamental terms:
Here’s the expanded chargeback glossary, with each term including an additional explanatory sentence for greater clarity:
Chargeback Glossary
Acquirer – A financial institution processing payments on behalf of merchants. Acquirers act as intermediaries between the merchant and the card networks, ensuring that transactions are approved, processed, and settled efficiently.
Address Verification Service (AVS) – A tool verifying billing address information for card-not-present transactions. AVS helps reduce fraud by cross-checking the provided billing address with the one on file with the card issuer.
Arbitration – A final stage of dispute resolution mediated by the card network. This process typically occurs when the merchant and the issuing bank cannot resolve a chargeback dispute, and the card network’s decision is binding.
Authorization – The approval process for a transaction by the card issuer. Authorization ensures that the cardholder has sufficient funds or credit available and that the card is valid for use.
Authorization Code – A unique code confirming a transaction’s approval. This code serves as proof that the transaction was authorized and can be referenced if disputes arise.
Authorization Hold – Temporarily reserving funds in a cardholder’s account for a pending transaction. This hold prevents the cardholder from spending the same funds twice while the transaction is processed.
Automated Clearing House (ACH) – A network for electronic bank-to-bank payments. ACH facilitates transactions such as direct deposits, bill payments, and electronic transfers, providing a secure alternative to paper checks.
B2B Transactions – Transactions between businesses. These transactions often involve higher amounts and longer payment cycles compared to consumer transactions.
B2C Transactions – Transactions between businesses and consumers. B2C transactions typically focus on quick, one-time purchases and are a key component of the retail and eCommerce industries.
Back-End Protection – Measures to mitigate chargeback risks post-transaction. These strategies include fraud detection, chargeback management tools, and comprehensive transaction monitoring.
Card Issuer – A bank or institution issuing payment cards to consumers. Card issuers manage cardholder accounts, including billing, payment disputes, and fraud prevention.
Card Not Present (CNP) – Transactions conducted without the physical card. Examples include online, mobile, and telephone orders, which are more susceptible to fraud.
Card Present – Transactions where the card is physically used. Card-present transactions are often considered lower risk since the merchant can verify the cardholder’s identity directly.
Card Verification Service (CVS) – A security measure verifying cardholder details in card-not-present transactions. CVS often requires the card’s expiration date and security code for added protection.
Card Verification Value (CVV) – A security code printed on cards for verification. This code helps verify the cardholder’s possession of the card during remote transactions.
Cardholder – The individual or entity to whom a payment card is issued. Cardholders are responsible for adhering to their card agreements and resolving disputes through their issuer.
Carding – Fraud involving the use of stolen or fake card information to make unauthorized purchases. This activity often involves testing stolen card data with small purchases before larger fraud attempts.
Chargeback – A transaction reversal initiated by a cardholder’s issuing bank. Chargebacks protect consumers from fraud but can impose significant costs on merchants.
Chargeback Abuse – Fraudulent or unwarranted use of the chargeback process. Abuse often involves consumers claiming unauthorized transactions to avoid paying for legitimate purchases.
Chargeback Accounting – Managing financial records related to chargebacks. This involves tracking chargeback disputes, fees, and associated losses to maintain accurate financial statements.
Chargeback Alert – Early notification of a potential chargeback. Alerts give merchants a chance to resolve disputes before they escalate into full chargebacks.
Chargeback Arbitration – Resolving disputes between merchants and issuers via card networks. Arbitration decisions are typically based on the evidence submitted by both parties and the card network’s rules.
Chargeback Cancellation – Reversing a chargeback and restoring funds to the merchant. Cancellation often occurs when the cardholder withdraws the dispute or when evidence favors the merchant.
Chargeback Costs – Expenses incurred due to chargebacks, including fees and lost revenue. These costs can also include operational expenses related to managing disputes and fraud prevention tools.
Chargeback Defense – Strategies to dispute chargebacks and retain revenue. Merchants often rely on detailed documentation and robust customer service to prevent and resolve disputes.
Chargeback Dispute – The process of challenging a chargeback. This involves the merchant providing evidence to prove the validity of the transaction.
Chargeback Fee – A fee assessed by acquiring banks for each chargeback. This fee compensates banks for the administrative work involved in handling disputes.
Chargeback Fraud – Fraudulent disputes initiated by consumers. Such fraud can severely impact a merchant’s bottom line and lead to increased scrutiny from acquirers.
Chargeback Management – Preventing and resolving chargebacks effectively. This involves implementing policies and tools to reduce disputes and improve response efficiency.
Chargeback Mitigation – Reducing chargeback frequency through preventive measures. Effective strategies include fraud monitoring, clear refund policies, and robust customer communication.
Chargeback Prevention Alerts – Notifications to address issues before a chargeback occurs. Chargeback alerts allow merchants to take corrective action quickly, often avoiding disputes. See, Ethoca alerts and Verifi alerts.
Chargeback Process – The procedural flow of initiating and resolving a chargeback. This process involves multiple stakeholders, including the cardholder, issuer, acquirer, and merchant.
Chargeback Rate – The ratio of chargebacks to total transactions. A high rate can lead to penalties, higher processing fees, or termination of merchant accounts.
Chargeback Recovery – Efforts to reclaim revenue lost to chargebacks. Recovery often involves submitting strong evidence to dispute invalid claims.
Chargeback Threshold – Limits on allowable chargebacks before penalties are imposed. Merchants exceeding this threshold may face fines or additional monitoring.
Chargeback Time Limit – Deadlines for responding to chargebacks. Missing these deadlines can result in automatic losses for the merchant.
Compelling Evidence – Documentation provided to dispute a chargeback. Evidence can include receipts, shipping confirmations, and customer communication logs.
Consumer Clarity – Clear communication to avoid misunderstandings leading to disputes. Transparent policies and accurate product descriptions can enhance clarity and reduce disputes.
Credit Receipt – Proof of a refunded transaction. Credit receipts are vital for resolving disputes and verifying refund claims.
Customer Service – Support provided to address consumer concerns. Effective customer service can prevent disputes by addressing issues proactively.
Data Breach – Unauthorized access to sensitive consumer data. Such breaches can lead to fraud and chargebacks, harming both merchants and consumers.
Data Filling – Providing transaction details to support a dispute. This can include order confirmations, delivery tracking, and communication records.
Data Security – Protecting sensitive information from unauthorized access. Encryption and compliance with standards like PCI DSS are critical components of data security.
Dispute – A cardholder challenge to a transaction. Disputes can escalate into chargebacks if unresolved.
Dispute Response – Merchant actions in addressing a dispute. Timely and thorough responses can increase the likelihood of successful outcomes.
Encryption – Securing transaction data through encoding. Encryption protects sensitive information from being intercepted during transmission.
Excessive Chargeback Program – A monitoring system for merchants with high chargeback rates. These programs impose penalties to encourage better chargeback management.
Friendly Fraud – Chargebacks initiated by cardholders despite valid transactions. Merchants must provide compelling evidence to challenge such disputes.
Fraud Detection – Tools and techniques to identify fraudulent activities. Advanced analytics and AI are often used to detect suspicious patterns in transactions.
Invalid Chargeback – A dispute filed without valid grounds. Merchants can challenge these chargebacks with proper evidence.
Issuer – The bank or entity that issued the payment card. Issuers are responsible for resolving disputes and ensuring cardholder security.
Merchant – A business accepting payments for goods or services. Merchants are key players in the chargeback ecosystem, as they directly handle customer transactions.
Merchant Account – A bank account for processing payments. This account facilitates the settlement of credit and debit card transactions.
Meritless Chargeback – Disputes initiated without proper justification. Meritless claims waste resources and can damage merchant reputations.
Monitoring Program – A system tracking merchants with chargeback or fraud issues. Programs like VAMP ensure compliance and mitigate risks.
Order Insight – A tool designed to improve dispute resolution by providing transaction details to issuers and cardholders in real-time, allowing issues to be resolved before chargebacks occur. It enhances communication and transparency between all parties involved.
Payment Gateway – A technology enabling secure online payment processing. Gateways encrypt and transmit payment details for authorization and settlement.
Payment Processor – A company managing transaction details between merchants and banks. Processors handle the technical aspects of payment approval and fund transfers.
PCI Compliance – Adherence to Payment Card Industry standards. Compliance is essential for protecting cardholder data and avoiding penalties.
Processing Fees – Charges for processing payment card transactions. These fees cover services like authorization, clearing, and settlement.
Rapid Dispute Resolution (RDR) – A quick mechanism to address disputes preemptively. RDR can prevent disputes from escalating into formal chargebacks.
Reason Code – Classification for chargeback reasons. Each code corresponds to a specific issue, such as fraud or non-receipt of goods. Here’s a list of Mastercard reason codes.
Refund – Reversing a payment for a returned product or service. Refunds are often preferred over chargebacks as they are less costly for merchants.
Refund Fraud – Falsely claiming a refund for financial gain. This fraud can be mitigated with clear policies and robust verification methods.
Representment – Merchant response to a chargeback with supporting evidence. Representment is the primary way merchants challenge disputes.
Return Fraud – Illegitimate product returns for a refund. This type of fraud often involves theft or misuse of refund policies.
Returns – Customer return of purchased items for refunds or exchanges. Clear return policies help reduce disputes and build customer trust.
Security – Measures ensuring safe transaction handling. These include encryption, tokenization, and fraud prevention tools.
Security Threat – Risks to sensitive payment information. Common threats include hacking, phishing, and malware attacks.
Transaction – An exchange of payment for goods or services. Transactions are the foundation of the merchant-consumer relationship.
Transaction Value – The monetary value of a transaction. Higher-value transactions often require additional verification to reduce risks.
Transaction Volume – The number of transactions over a given period. Monitoring transaction volume helps merchants assess business performance.
True Fraud – Genuine fraudulent activity, such as identity theft. True fraud requires immediate attention to protect consumers and merchants.
Unauthorized Transaction – A payment made without the cardholder’s consent. Such transactions often result from lost or stolen cards.
VAMP (Visa Acquirer Monitoring Program) – Visa’s replacement for VDMP and VFMP, aimed at managing fraud and chargeback activity thresholds for acquirers and merchants. It provides a unified framework for monitoring and reducing risks.
VDMP (Visa Dispute Monitoring Program) – Visa’s program for monitoring and penalizing merchants with excessive chargeback rates. Merchants are encouraged to reduce disputes to avoid fees and penalties.
VFMP (Visa Fraud Monitoring Program) – Visa’s program for tracking and managing merchants with elevated fraud activity. It aims to safeguard the payment ecosystem by encouraging fraud reduction.
Valid Chargeback – A chargeback supported by valid evidence. These disputes are difficult for merchants to overturn without compelling counter-evidence.
Winnable Chargeback – Disputes with strong evidence favoring the merchant. A well-prepared response can improve the chances of recovering lost revenue.