What Is Chargeback? Credit Card Chargeback Vs Refund

Talking about credit card chargebacks, all we can say is that it is the most frustrating issue merchants face today. Actually, it’s not just a financial hit, it’s a feeling of helplessness when your revenue gets reversed and leaves a bad impression on your business which affects it badly. Unlike refunds, where the process is initiated and controlled by the merchant, chargebacks allow customers to dispute a charge directly with their bank or credit card issuer.

Let us make it simple for you, a chargeback is when a customer disputes a transaction, and claims that it was unauthorized, faulty, or unsatisfactory. Credit Card Chargebacks involve third-party involvement which are primarily banks and usually, it results in fees for the merchant. The disturbing part is chargebacks can lead to penalties, increased fees, and even the loss of their merchant account. 

Being part of the industry for more than 15 years Phozellpay has seen thousands of merchants suffering from chargeback issues and luckily this long-term period & experience have given us some solutions to minimize the harm to merchants. So, stop googling “what is chargeback” & just keep reading and find out how you as a merchant can save yourself from such a disturbing situation and smoothly run their payment processing system. We will be covering how can merchants minimize this risk while still offering excellent customer service. 

What Is CDRN? As a Merchant, How To Get Benefits From CDRN In Chargebacks?

Chargeback Dispute Resolution Network (CDRN) is a tool merchants can take leverage from. Wanna know how? it’s quite simple but first, we need to understand how CDRN works. Well, Instead of heading straight into a formal dispute process with a bank, the CDRN works directly with merchants to resolve disputes before they escalate into a full-blown credit card chargeback. CDRN allows merchants to resolve potential chargeback disputes directly with the customer before banks get involved, it simply means that you have a chance to stay safe and get it resolved. 

Step: 1 CDRN Alerts

When the cardholder contacts the card issuer for a chargeback dispute. The card issuer (Bank) sends the notification to the merchant involved.

Step: 2 Pre- Dispute

Instead of traditional chargeback flow the card issuer calls the merchant for pre-dispute. The merchant now has to decide: fight or concede? At this stage, you’re faced with the decision to either accept the chargeback or submit additional evidence to support your case. This part is especially beneficial for small and medium-sized businesses that might not have the resources to deal with the time-consuming nature of chargebacks.

Step: 3 Period Of Decision 

The card issuer gives only 72 hours to the merchant to decide how they would like to handle the situation either accept and refund or fight back and prove the innocence on your end. This is the point where you can benefit from CDRN and avoid further disputes. 

Step: 4 Refund or Follow the Chargeback Flow

If the merchant goes with the option of a refund to avoid the chargebacks and satisfies the customer, the story ends here leaving a bad impression on the business. But, if the merchant allows the dispute to follow the traditional chargeback flow this give the merchant the opportunity to fight back and prove his instance relying on evidence in the form of proper documentation. In case the goods paid for are not shipped to customer the CDRN allows the merchant to stop shipment. 

Pre-arbitration Stage in Chargebacks

For merchants, this pre-arbitration stage often brings stress and a feeling of loss of control. Time and money are on the line as you scramble to compile documentation that proves the legitimacy of the transaction. The burden falls heavily on your shoulders as merchants, trying to prove that you followed proper procedures.

Impact Of Pre-arbitration Chargebacks 

The impact of pre-arbitration chargebacks extends beyond the potential loss of a single sale. Each chargeback can have a ripple effect, resulting in additional fees, strained relationships with your payment processor, and the risk of being labeled a “high-risk” merchant. If your chargeback rate exceeds a certain threshold, you could face higher fees or even lose your merchant account altogether. 

Both parties the cardholder & the merchants are given a specific period to prove their stance. If anyone fails to do so the dispute is automatically resolved in favor of the other party. It has several negative effects like Higher operational costs, Financial loss, Potential for legal consequences & Damaged reputation if you fail to prove yourself innocent. 

Credit Card Chargeback Vs Refund

We have discussed the chargebacks enough but what about refunds? How refunds are different from chargebacks? Let’s find out. Well, REFUND is a voluntary process initiated by the merchant. Whenever the customer is dissatisfied with the services or product you sold to them, or if when there’s a billing error the merchant can issue a refund directly to the customer. It is harmless & no third-party involvement. The transaction is simply reversed, and the customer receives their money back. Refunds are typically processed faster than chargebacks and don’t carry the risk of penalties or negative marks on a merchant’s account. 

Key Differences 

To make you understand the clear difference here are some key points to know.

Are Chargebacks or Refunds Good For Merchants?

Neither chargebacks nor refunds are good for merchants & their businesses because both arise from the point of dissatisfaction on the customer’s end. But as it is the saying, accept lesser harm to avoid major harm so, applying this saying you know which is better for you. 

Refunds are less risky than chargebacks because the merchant has more control over the situation and giving a refund is somehow seen as a better option as it gives a sense of honesty on the merchant’s end. 

When possible, offering a refund before the situation escalates into a chargeback not only saves money but also creates a more positive experience for the customer. From a merchant’s perspective, it’s far better to offer refunds proactively than to wait for a chargeback. You’ll maintain control over the situation, avoid extra fees, and leave the customer with a more positive experience. 

How To Prevent Credit Card Chargebacks?

Chargebacks may feel like a merchant’s worst nightmare, but they don’t have to be you can avoid chargebacks safely by: