A chargeback is when a cardholder disputes a transaction, and the card issuer reverses the payment. This typically occurs when the cardholder believes the transaction was unauthorized, the product or service wasn't delivered, or the goods/services did not match the description. The chargeback process allows consumers to get their money back, but it can also result in penalties and financial losses for merchants.

Example:
A customer buys a pair of shoes online for €100. After receiving the shoes, they realize they’re not as described on the website (e.g., the colour or size is wrong). The customer contacts the merchant for a resolution but gets no response. As a result, the customer disputes the charge with their bank. The bank investigates the claim, and since the merchant fails to provide proof that the transaction was legitimate or the product was as described, the bank reverses the payment, returning the $100 to the customer. The merchant loses both the money and potentially faces additional fees for the chargeback.

Chargebacks can occur for a number of reasons, but the most common are due to fraudulent transactions, customers not receiving their purchased items, or products/services not matching their descriptions.

Chargebacks can lead to lost revenue, additional fees from card schemes, and administrative burdens. Excessive chargeback rates can also result in higher fees or the termination of your payment processing agreement.

Merchants can minimize chargebacks by:

• Delivering high-quality products and services as promised.

• Maintaining accurate marketing materials and clear terms and conditions.

• Responding promptly to customer inquiries and complaints.

• Using transaction authentication tools to prevent fraud in e-commerce.

The costs of chargebacks include the lost sale, additional scheme fees, and the time and resources spent defending disputes. For small businesses, these costs can be particularly impactful, emphasizing the importance of prevention strategies.

The migration from Maestro and VPay to Visa Debit and Mastercard Debit  brings broader consumer protection to cardholders. Mastercard and Visa Debit cards have identical chargeback rules as their respective credit card products. The biggest change will be seen in the POS environment; for example, a Debit cardholder may file a chargeback if the tailor they paid to make their wedding suit goes bankrupt before delivering the product, which wasn’t possible with Maestro or VPay. Merchants should familiarize themselves with these changes and their obligations. This is especially important if you will be accepting new payment methods as a result of this migration, such as accepting payment over the telephone (MOTO).