What is a Chargeback? Here's Everything You Need to Know

Examining the June data of the last four years, we can say that the number of credit cards, debit cards, and prepaid cards has increased rapidly. When we look at it according to card types, we can see that the rate of increase in the number of prepaid cards is faster than other card types. We also observe a significant increase in the total transactions made with prepaid cards. The overall increase in card transactions, regardless of the card type, has also increased the number of disputes over these expenses.

What is Chargeback?

Whether it's a credit card, debit card, or prepaid card, the chargeback process begins when we encounter problems with these cards. In the simplest definition, a chargeback is a process created to protect the parties in case of systemic or party-related issues in payment systems. The chargeback process operates under the rules set by international card payment organizations such as MasterCard, Visa, Amex, Turkey's national payment system, Troy, and the Interbank Card Center.

With the increase in the number of cardholders or electronic money companies. The place where consumers will apply when they encounter issues with their cards that they can resolve with the business or when transactions occur without their knowledge is the bank or electronic money company that issued the card. Thereafter, a discussion process begins between the card and business organizations regarding the related expense.

The Importance and Proper Use of the Chargeback Process

So why is this process necessary? The chargeback process exists because the laws regulating social life or the courts enforcing these laws exist. Thanks to chargebacks, consumers can trust the card-issuing institution more. Issues experienced, especially after purchasing products/services, are tried to be resolved primarily with the business according to the rules of chargeback, but this is not always possible. A consumer who cannot resolve the issue with the business but believes they are right can apply to the chargeback process.

The chargeback process is applied when cardholders encounter issues and cannot resolve these issues with the business. Sometimes, cardholders may abuse the chargeback process, preferring it instead of requesting a refund from the company or claiming that they did not receive the service or that the transaction was unauthorized. Even though they made the transaction and received the product/service, and perhaps achieving this due to some shortcomings in the process. When such situations are detected, businesses can take actions such as initiating legal proceedings against the relevant cardholders or terminating membership/blacklisting them.

What are the Differences Between Chargeback and Refund?

Chargeback and refunds are two different processes. In both cases, if the cardholder is correct, they receive a refund of the amount paid. However, while the business carries out refund transactions, the chargeback occurs between the card organization and the business's bank to decide who is right.

In What Situations Can the Chargeback Process be Initiated?

The situations in which the dispute process can be initiated are determined by the relevant card schemes (MasterCard, Visa, Amex, etc.) and can be listed as follows, but not limited to:

Post-Sale Issues

These include issues experienced as a result of products/services received from or intended to be received from businesses.

Not receiving the product/service or being unable to obtain it from the business. Receiving the product/service incomplete or incorrectly, not receiving the refund despite the product/service being canceled/returned by the rules of the business or the cardholder.

Fraud

This is when transactions occur on cardholders' cards without their knowledge (fraud). When cardholders detect that unauthorized people have used their card data, they can object by declaring this. This includes both physical and e-commerce uses of the cards.

Merchant (Point of Sale) Errors

Payment issues may occur due to technical or human errors at the terminals (POS, ATM) where card transactions are performed. These can be listed as follows:

• The transaction being attempted multiple times due to an error but being reflected on the card numerous times (duplicate transactions) for a single service received, or the payment being made by a different method (different card, cash, etc.) despite the error. The erroneous transaction also being reflected in the card transactions.
• The transaction amount is entered incorrectly
• Cash being stuck during cash withdrawal/deposit transactions at ATMs

How to Initiate the Chargeback Process

A cardholder who wants to initiate the chargeback process should immediately apply to the bank or electronic money institution to which the card is linked. The relevant institution will guide the cardholder in the best way and, if necessary, may request that the cardholder complete a dispute form or provide information/documents supporting the dispute.

Supporting information/documents for the dispute can include order information, notification emails from the business, e-invoices, etc., in the case of an online transaction. A transaction made from a physical POS device could include a sales receipt, invoice, order information, or product delivery information obtained from the business.

How Long Can the Chargeback Process be Initiated?

The cardholder should notify the card institution of the problem immediately. Chargeback processes are carried out within specific time frames. Generally, there is a right to dispute within 120 days after the transaction. Suppose the delivery date of the product/service is a future date. In that case, the process can be initiated within 120 days from the relevant or cancellation date if a cancellation/return is involved. However, under no circumstances should 540 days pass from the transaction date.

How Long Does the Chargeback Process Take to Conclude?

In the chargeback processes, there may be multiple "sessions." That is, when the issuing bank/electronic money institution submits the dispute to the business's bank/electronic money institution, the business and its institution have a certain period to defend themselves. After the business side defends itself, the issuing institution can continue the process based on valid reasons. The dispute process can be concluded in a single session, or there can be multiple sessions. For this reason, there is no fixed duration for the completion of the dispute process.

The relevant durations may also vary depending on various factors such as the type of card (credit card, debit card, prepaid card), the brand of the card (MasterCard, Visa, Troy, etc.), and whether the transaction is national or international.

Still, when we look at the earliest resolution times, disputes related to expenses made through POS (virtual POS, physical POS, mobile POS) generally take at least 30 days if your card is Visa and at least 45 days if it is MasterCard.

Dispute processes for cash withdrawal/deposit transactions made from shared ATMs within the country usually conclude within 20 days.

Suppose the dispute process cannot be resolved between the card and the business's bank/institution, and the maximum number of sessions is reached, meaning that the process cannot progress further according to the rules. In that case, the relevant dispute process is referred to the impartial arbitration boards of card payment organizations (Visa/Mastercard, BKM, etc.) for review.

What Precautions Can Card Users Take Before Chargeback?

Chargeback processes exist to protect the parties, but since the investigations take a certain amount of time to complete, it is recommended that the issue between the business and the cardholder first be resolved for a quick and efficient solution.

To prevent 'fraud' situations, that is, unauthorized use of the card. It is recommended to use virtual cards for e-commerce purchases, set virtual card limits as needed during the transaction, avoid transactions on shopping sites that are not considered very reliable. Thus, share card information as little as possible in a secure environment. You should remember that you leave a digital footprint everywhere you use your card and that your card number, expiration date, and CVV information may be stolen.

What Precautions Can Businesses Take Before Chargeback?

Business owners can take various precautions to reduce the chargeback requests they receive or to avoid losing the disputes and being responsible for the amount.

The most important precaution is to allow transactions to be carried out using the 3D Secure method, and if there is no different strategic decision not to prefer it, making this application mandatory. In the case of fraud-related disputes that may arise from transactions without a 3D security system, the responsibility lies with the business. Especially, a fraud-related dispute aiming to abuse the chargeback system can lead to financial loss for businesses.

In addition, businesses are required to keep transaction records. Failure to provide information/documents related to the transaction when a chargeback dispute arises can lead to losing the dispute.

An e-commerce company should especially keep customer and transaction information detailed and accurate, and be able to provide this information in case of a chargeback dispute.