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April 19, 2022
by David Goodale

What is a chargeback?

(Slightly edited from video transcript for greater readability)

Hello, David here at Today, I'm going to tackle a another simple question: "What is a chargeback?". Stay tuned, I'm going to answer it in a second.

What is a chargeback?

It is a pure bloody frustration. If you're a business owner, what it means is you've lost money because as soon as a chargeback happens, you pay a chargeback fee to your payment processor. Now I know I haven't explained what it is as yet. It's a dispute. It's where your customer, took their credit card in the hand, turned it over and they read the number to their bank, then called their bank and said, : "Hey, I have a dispute about this transaction". Then they tell the bank to forcibly reverse the transaction. Now that can happen for a bunch of different reasons. It can happen for fraud. I never bought this flat screen TV or whatever it might have been. That wasn't me. I've never heard of this merchant before. That's where the cardholder is claiming fraud. There are other reasons as well.

Other reasons for chargebacks

It could be the item, not as described. Hey, I bought this, you know, hat and it was supposed to like fit my head, but it's this big, it's a toddler's hat and I'm not a toddler. And that didn't say that on the website, they, they did not give me what they promised. So that's another example of a reason code for a chargeback there several different reason codes, but they basically follow the type of disputes that you could anticipate could happen between a card holder and a merchant. Now, when that happens, you get issued a chargeback. There's a fee that comes with it. The fee's not the worst part. The worst part is if you lose the chargeback, you lose the money. So let's say that you sell very exotic, very expensive, rare blue diamonds, and you get a big order and you ship off without validating the order in any way, which by the way is a terrible idea, but it happens for some reason because I'm making a silly example.

The point is you lose the diamond. The Diamond's gone. Somebody got the diamond. They have it, they're now in possession of some super valuable diamond. Unfortunately, the chargeback comes in and the persons whose card got charged wasn't really them. You can lose your product and lose the money from the sale at the same time.


It's best to generally prevent chargebacks from happening before they occur. An ounce of prevention is worth a pound of cure and more. We have other content and other videos about spotting fraud and validating orders. We have a video about using Google meet or for example zoom to validate suspicious orders. We have some content about 3d secure, which is an extra security step in an eCommerce checkout process that protects you as a merchant. The cardholder can't claim fraud if you have a 3d secure transaction. Now I'm off on a tangent. I didn't mean to get all into this. A charge back is a dispute between a cardholder and a merchant. As a merchant, you want to stop that from happening, do not immediately ship suspect orders, validate your orders, give good customer service. You shouldn't have any charge back problems. If you do you want to talk to us at, we're here to help. I hope you enjoyed this video. Thanks for watching. Have a good day.

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David Goodale About the Author

My name is David Goodale, CEO at Merchant I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.

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