A Chargeback is a mechanism of transaction reversal initiated by a cardholder’s bank, primarily intended to return funds to a consumer. The chargeback process is typically triggered by a customer dispute, aiming to protect consumers against fraudulent transactions, clerical errors, or dissatisfaction with a product or service.
In a chargeback scenario, the merchant’s bank is mandated to extract the transaction amount from the merchant’s account and credit it back to the cardholder. The merchant may also be charged a fee, intended to cover the administrative costs involved in the chargeback process.
Although chargebacks serve as a crucial element of consumer protection, they can also lead to significant financial losses for merchants if not properly managed.