The Chargeback Cycle

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A chargeback occurs when a processed credit card transaction is reversed (charged back) to a merchant because the customer or customer’s bank finds something wrong with the transaction.

Chargebacks happen for a variety of reasons. The primary reason is customer dispute, but other contributing factors include fraud, credit card processing errors, non-fulfillment and authorization issues.

Every chargeback is assigned a reason code, which is a two-digit number used to identify why a chargeback occurred. Reason codes may vary by card brand.

So how exactly does the chargeback cycle work? Here’s a graphic to better visualize the process:

Every merchant that offers credit card processing to customers should be concerned about chargebacks to their merchant account. One reason for this is that chargeback fees are assessed to the merchant regardless of the dispute’s cause or outcome. Lower your risk of chargebacks by following these tips:

  • Verify card logos, credit card numbers, customer identification and signature, and the card’s expiration date.
  • Call for voice authorization if the card magnetic stripe or chip doesn’t work, or if the terminal is down or cannot authorize.
  • Authorize every transaction.
  • Be sure your customers are familiar with your return or exchange policy.

We form an alliance with our merchants to assist with every aspect of the credit card processing experience. Contact a representative to learn more about credit card processing best practices that can help you grow your business.


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