A chargeback is a dispute initiated by a customer through their bank to reverse payment on a completed transaction. As a merchant, you can choose to either dispute the chargeback by filing evidence with the cardholder’s bank, or choose to accept the chargeback and release the funds to the cardholder. Once a chargeback has been filed, the disputed funds will be put on hold until the case has been resolved.
If you process credit card transactions for long enough, you are likely to encounter a chargeback. This article will cover the chargeback process and steps you can take to protect yourself against frequent or fraudulent chargebacks.
Understanding chargebacks
To help you understand the typical chargeback process, let's start with the definitions of a chargeback’s key players:
| Cardholder | The owner of the credit card (your customer). |
| Merchant | The owner of the Retail shop that processed the credit card (you). |
| Issuer | The bank that issued the credit card to the cardholder (your customer). |
| Acquirer | The bank that acquires payments for the merchant (you). |
| Credit card network | The credit card brands (Visa, Mastercard, Amex, Discover) that determine the guidelines of their chargeback process. |
| Lightspeed Payments team | Support agents are responsible for facilitating chargeback communications between the merchant and the acquirer. |
Now that you know the key players, let's breakdown the steps in a typical chargeback process. We use the term typical chargeback process because the process can vary depending on the banks involved. In any case, you can lean on our Lightspeed Payments team to guide you through the process.
- The cardholder files a chargeback with the issuer.
- The issuer communicates the chargeback to the acquirer. At this point, the merchant is debited for the disputed amount and the chargeback fee. The chargeback fee is non-refundable.
- The acquirer communicates the chargeback to our Lightspeed Payments team.
- Our Lightspeed Payments team contacts the merchant to advise them of the chargeback.
- The merchant either accepts the chargeback or works in conjunction with the Lightspeed Payments team to dispute it, sending evidence as required.
- Our Lightspeed Payments team communicates the merchant's response to the acquirer.
- The acquirer communicates the merchant's response to the issuer.
- The issuer reviews the chargeback dispute and determines whether the cardholder or the merchant won the dispute. If the merchant won the dispute, they are refunded for the disputed amount. If the merchant lost however, they must absorb the disputed amount.
The retrieval request process is the same as the chargeback process, except the disputed amount and chargeback fee are only debited from the merchant if the retrieval request results in a chargeback. From the merchant's perspective, retrieval requests are rarer than chargebacks because the issuer and acquirer typically resolve the request without their involvement and only involve the merchant if the retrieval request results in a chargeback.