What is a chargeback? 

  • A chargeback occurs when a cardholder disputes a transaction and the payment is reversed
  • It means you don't get paid for the goods or services relating to the transaction, even if you've already provided them
  • You'll also have to pay fees for the chargeback to be investigated and processed

When can a chargeback occur? 

The cardholder's bank (credit card issuer) can make a chargeback on a transaction if the: 

  • Transaction is illegal or prohibited
  • Card wasn’t valid at the time of the transaction
  • Cardholder didn’t authorise the transaction
  • Cardholder says they’re not liable for the transaction
  • Authorisation for the transaction is declined
  • Sales receipt is changed without the cardholder’s authorisation
  • Transaction was processed to your own credit card
  • Term of your Merchant Agreement is breeched
  • Transaction amount is above your floor limit, but this amount wasn’t authorised
  • Transaction was made to refinance an existing debt or collect a dishonoured cheque

Who is liable for a chargeback?

Generally, a cardholder can dispute a transaction for any of the above reasons. If you can’t prove that the cardholder authorised the transaction, then you’ll be liable for the chargeback.

How to reduce your risk of customer disputes

To reduce the risk of chargebacks caused by customer disputes, it’s important to keep your transaction records up to date. This will make it easier for you to find evidence of a specific authorisation.

It’s also a good idea to make sure your invoices, contracts and promotional materials include your:

  • Business name as it appears on the cardholder’s statement
  • Business address
  • Customer service contact details
  • Return and cancellation policy details
  • Debit dates for regular instalments, such as memberships or subscriptions.

On each invoice, you should also include:

  • A complete description of the goods and services you’ve provided
  • A specific delivery time (if relevant).

How to reduce the risk of fraud

You can help reduce fraudulent credit card transactions by:

  • Always requesting the card verification code (known as a CVV2 or CVC2) for each transaction
  • Using a security program, such as MasterCard SecureCode or Verified by Visa.

Visa's new chargeback process

Why did Visa change their chargeback dispute process?

On 13th April 2018, Visa introduced new chargeback rules for all merchants, cardholders and banks to ensure that chargeback processes are applied consistently all over the world.

What changed?

  • Automated dispute decisions. Card schemes including Visa and MasterCard, outline which chargebacks are automated and which can be disputed. The changes mean some chargebacks with a fraud or authorisation reason code will be automated and the chargeback will be debited from the merchant's bank account.
  • Fewer invalid customer chargebacks. If a chargeback doesn’t meet the necessary criteria as outlined by the schemes, the chargeback will be declined and returned to the cardholder’s bank. Merchants can expect to see a reduction in invalid chargebacks disputes initiated by cardholders.

Does this affect the number of chargebacks merchants receive?

Under the new chargeback process, schemes will automatically determine if a chargeback is valid or not. If the chargeback is invalid, it will be returned to the cardholder’s bank – and merchants won’t need to do anything. This means merchants may receive fewer invalid chargeback disputes in future.

Can merchants still dispute chargebacks?

In some circumstances, merchants will still be able to dispute a chargeback. Schemes outline which chargebacks are automatic and which ones merchants can dispute. Some processing error or consumer dispute chargebacks can be disputed. 

What happens if merchants dispute a chargeback?

If merchants dispute a chargeback, they will need to provide documentary evidence to support their claim. If merchants haven’t provided satisfactory evidence, the dispute may become an automatic chargeback, and their account will be debited.

What documentation is important to keep?

To reduce the risk of chargebacks caused by customer disputes, it’s important merchants keep detailed transaction records showing that each cardholder has received the goods or services they’ve paid for. This may include signed and imprinted sales receipts and any other relevant sales information.

Things you should know    

As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Please view our Merchant Agreement, Financial Services Guide and Operator and User Guides at our Merchant Help Centre.