Chargebacks can result from a number of reasons including: fraud or suspicion of fraud, cardholder not recognizing the transaction, no cardholder authorization, duplicates processing, or cancelled recurring transactions. For most transactions, cardholders have up to 180 days to initiate a chargeback, depending upon the nature of the dispute. In general, merchants are liable for chargebacks if they did not obtain an authorization or if the merchant otherwise failed to follow prescribed protocol (such as shipping the goods promised in working order and as described at the time of purchase). The issuer is generally liable for chargebacks where there was an authorization obtained (for example, in the event of an undetected identity theft, application fraud, counterfeit, etc). The acquirer only assumes liability if the merchant is unable to do so due to bankruptcy or merchant fraud.
1. Chargebacks and Fraud Losses
Chargebacks and fraud are sometimes considered synonymous by merchants, as both result in lost sales, and these losses can be a material expense for some merchants. Those most susceptible to fraud are merchants that process volume on the Internet or other card-not-present environments and merchants selling higher risk merchandise such as jewelry and electronics. Both Visa and MasterCard intervene with merchants who demonstrate excessive chargebacks. If these merchants continue to experience high loss rates, the associations can and may chose to fine the merchants’ acquirers or direct the acquirer to stop processing cards for a given merchant.