The Ultimate Dictionary of 120+ Essential Chargeback Terms for eCommerce

Chargeback terms are as numerous as sand on the seashore. There are so many of them. And these terminologies can be confusing at times.

Seriously, misunderstanding chargeback terms is one of the primary reasons merchants lose chargeback disputes. Therefore, we’ve compiled this list of essential chargeback terms for eCommerce to help you navigate payment disputes effectively. It’s your go-to resource center for the various chargeback terminologies that impact your business.

While we can’t possibly cover all the chargeback concepts in one piece, we’ve curated the most commonly used terms. This dictionary of essential chargeback terms will help merchants and payment professionals effectively manage transaction disputes. We've grouped the list from A to Z. Navigate through the various alphabets for the terminology you want to understand better.

The Importance of Understanding Chargeback Terms

It's impossible to win any dispute if you don't know the nomenclatures used by card networks and banks to describe the different aspects of payment disputes and the underlying circumstances. That's of vital importance because effective chargeback resolution is primal to financial stability and customer trust.

Understanding the various chargeback terms helps you identify and address cases according to industry regulations. For instance, not knowing the meaning of "chargeback reason code" can lead to communication friction with payment processors and banks. It’ll impede your dispute resolution efficiency.

Staying updated with chargeback terms helps adjust your prevention strategies in line with prevailing circumstances.

eCommerce fraud terrain is constantly evolving. Regardless of your business stage, understanding the jargon used to describe every aspect of payment disputes is indispensable.

With all that said, let’s examine the essential chargeback terms for eCommerce.

List of 120+ Chargeback Terms for eCommerce

Essential Chargeback Terms: A-B

Account Takeover

Account takeover (ATO) is the unauthorized access and control of a user's account, typically on an online platform or service. It occurs when a malicious actor gains access to a legitimate user's credentials (like username and password) through phishing attacks, malware, or authentication vulnerability exploitation.

Once the scammer takes over a user's account, the attacker can impersonate the user, access personal data or financial details, and perform transactions on their behalf, which often results in a chargeback. According to estimates from American Banker, losses from digital fraud due to ATO will exceed $343 billion globally from 2023 to 2027.

Acquirer

An Acquirer is a financial institution responsible for facilitating credit and debit transactions on merchants’ behalf. When a shopper makes a transaction with a credit or debit card, the Acquirer processes the transaction by connecting with the card network (such as Visa or Mastercard) and the card issuing bank. This involves verifying the transaction’s validity, ensuring funds availability, and handling the payment settlement process.

Beyond transaction processing, merchant Acquirers also help to manage risks associated with payments. They implement measures to prevent fraud and ensure transaction security, thereby protecting both merchants and cardholders.

Revenue for Acquirers comes from interchange fees paid to card issuing banks, processing fees chargeback to merchants for each transaction, and service fees. These fees cover payment processing costs, maintaining security measures, and providing customer support.

Acquirers are vital intermediaries in the payment ecosystem. They enable merchants to accept card payments securely and efficiently while managing transaction processing complexities and risks.

Address Verification Service (AVS)

Address Verification Service (AVS) is a security instrument in credit card transactions that verifies the cardholder's billing address. During online or phone purchases, the customer enters their address, which is then compared with the address on file with the card issuer. That helps merchants validate the transaction's authenticity by confirming the cardholder's identity. AVS provides additional security by reducing the risk of fraudulent transactions. However, it does not independently authorize transactions. It only assists merchants in assessing transaction legitimacy. AVS is one component in a broader strategy to prevent fraud, alongside other security measures implemented by merchants.

Arbitration

Arbitration in chargeback resolution is a definitive method for resolving payment disputes that have proven unresolved through earlier stages, offering clarity and closure to both parties.

Card issuers initiate a second chargeback if they find a merchant's compelling evidence insufficient, or disputes the response. Furthermore, the merchant or the card issuing bank can escalate the case to arbitration. The card network will review evidence from the acquirer and card issuer and make a binding decision, which concludes the case. Arbitration decisions are final and cannot be appealed further within the chargeback process.

Authentication

Authentication is a method for verifying the identity of an entity or user to ensure they are who they claim to be before granting transaction or service usage access. Authentication involves presenting credentials—like passwords, biometric data, or security tokens—and validating them against stored records or through external I.D. verification services.

Crucial aspects include multi-factor authentication (MFA), which enhances security by requiring multiple types of credentials; single sign-on (SSO), which allows users to access several systems with one set of credentials; and continuous authentication, which monitors user activity to detect suspicious behavior even after initial login. Authentication methods vary in security and convenience, balancing user experience with protection against unauthorized access. Robust authentication practices help safeguard sensitive information, prevent identity theft, and maintain trust in digital interactions.

Authorization

Authorization is the process of granting or denying approval for a credit card transaction. Once authentication verifies the identity, authorization determines what actions and resources the authenticated entity is permitted to access. Key aspects include role-based access control (RBAC), where permissions are assigned based on predefined roles, and attribute-based access control (ABAC), which considers additional factors such as user attributes and environmental conditions for access decisions.

Authorization is a vital step in the payment processing cycle as it helps ensure the cardholder has sufficient funds available to complete the transaction and helps prevent fraudulent activity.

When a buyer purchases with a credit card, the merchant submits a request to their acquirer for authorization. The acquirer then sends the request to the card issuer, which checks the cardholder's account to see if sufficient funds are available to cover the transaction. If the card issuer approves the transaction, it sends an authorization code back to the acquirer, which passes it on to the merchant. The authorization code confirms that the transaction can proceed and the merchant can complete the sale.

If the card issuer does not approve the transaction, it sends a decline response to the acquirer, which passes it on to the merchant. In this case, the transaction cannot proceed, and the cardholder may need another payment method.

Authorization Hold

Authorization hold, also known as pre-authorization, is a practice used by merchants and financial institutions to reserve funds on a customer's payment card for a pending transaction. When a cardholder makes a purchase, the merchant requests authorization from the card issuer to verify the availability of funds. Instead of immediately deducting the purchase amount, the issuer places a temporary hold on the funds, typically for a few days.

That ensures the customer has sufficient funds to cover the transaction when finalized. Authorization holds are standard practice in hotel bookings, car rentals, and fuel purchases, where the final transaction amount may vary, or additional charges (such as damages or tips) could apply. Authorization helps mitigate risks by reducing the likelihood of disputed transactions and potential financial losses for merchants.

Authorization Request

An authorization request is a critical step in payment processing where a merchant seeks approval from a card issuer to initiate a transaction. It involves verifying whether the cardholder has sufficient funds or credit for the transaction amount. The Authorization process typically begins when a customer makes a purchase, and the merchant's payment processor sends an authorization request to the card network (e.g., Visa, Mastercard) through the issuing bank.

They will validate the card details, transaction amount, and whether the card is active and not reported stolen. Upon receiving the authorization request, the issuer assesses these factors and responds with an approval or decline. That determines whether the transaction proceeds.

Authorization Response

Authorization Response is the feedback card issuers provide to an authorization request from a merchant. This response determines whether a transaction is approved or declined. Factors considered to decide on Authorization Response include available funds, account status, and potential fraud indicators. A positive Authorization Response validates the transaction and allows the merchant to fulfill the customer's order. If declined, the response may specify reasons for denial, such as insufficient funds or suspicious activity.

Authorization Reversal

Authorization Reversal, also known as void or cancelation, is the cancellation or release of a previously authorized transaction before settlement. Authorization Reversal occurs when a merchant cancels an order, issues a refund, or when an initial authorization expires without the transaction being finalized. In incidents of Authorization Reversal, merchants must promptly release reserved funds back to the cardholder's available balance, ensuring they are not held unnecessarily. This process helps manage customer expectations, prevents potential chargebacks, and maintains accurate financial records for both parties.

Auto Representment

Auto Representment is a chargeback mediation approach whereby a payment processor automatically handles chargebacks, such as unauthorized transactions or transactions not delivered, on behalf of a merchant without their direct involvement or awareness.

Automated Chargeback Representment

Automated chargeback representment is a chargeback management process whereby a merchant automatically responds to cases with predefined rules and automated systems. This innovative approach involves analyzing incoming chargeback notifications and determining whether to dispute them automatically. Auto Representment enhances efficiency by reducing manual intervention, speeding up response times, and helping recover funds that would otherwise be lost to chargebacks.

Essential aspects of auto representment include its rules-based nature, where criteria such as transaction details, fraud indicators, and historical data are used to make dispute decisions. It is a proactive strategy for mitigating financial losses by contesting invalid or fraudulent chargebacks. Customizable parameters allow merchants to tailor auto representment strategies to specific business needs and risk tolerance levels

Automated Clearing House (ACH)

Automated Clearing House (ACH) is a network for processing financial transactions in the U.S. This network facilitates electronic transfers between banks and financial institutions. ACH transactions include direct deposits, such as payroll and government benefits, and direct payments, such as bill payments and account-to-account transfers.

Key features of ACH transactions include lower transaction costs compared to traditional paper checks, faster processing times, and the ability to schedule recurring payments. Transactions are governed by the rules and regulations of the National Automated Clearing House Association (NACHA), ensuring secure and efficient transfer of funds. ACH plays a crucial role in the economy, as it reduces reliance on physical checks and enhances overall financial accessibility and convenience.

Back-End Protection

Back-end protection is a methodology for safeguarding against fraud and ensuring transaction integrity. This includes robust authentication mechanisms to verify transactions, encryption of sensitive data during transmission and storage, and adherence to PCI-DSS standards for secure processing. Implementing fraud detection and monitoring systems helps catch suspicious activities early for prompt risk mitigation actions. Effective back-end protection enhances customer trust and reduces financial losses due to fraud and chargebacks.

Bank Identification Number (BIN)

Bank Identification Number (BIN) serves to identify the issuing institution of a credit or debit card. It consists of the first six digits of a card number and is integral to routing transactions efficiently. BINs facilitate fraud prevention by verifying card authenticity and origin. That helps to detect suspicious transactions. Understanding BINs is essential for merchants to implement accurate transaction processing, comply with payment network rules, and enhance security measures. Regular updates and integration with BIN databases are crucial for maintaining operational efficiency and minimizing risks associated with fraud and chargebacks in electronic payment systems.

Billing Descriptor

A Billing Descriptor is the name or transaction identifier that appears on a customer's credit card statement. Billing Descriptors play critical roles in payments and chargeback management by ensuring clarity and transparency for cardholders. The descriptor typically includes the merchant's business name, contact information, and a brief explanation of the transaction to help cardholders recognize and verify charges.

Clear and recognizable billing descriptors reduce confusion thereby lowering the likelihood of chargebacks due to unrecognized transactions. It also contributes to customer satisfaction and trust.

B2B

B2B stands for Business-to-Business, which refers to transactions between two businesses rather than between a company and a consumer. B2B transactions are a significant portion of the economy, as businesses rely on other entities to provide the goods and services they need.

In a B2B transaction, one business sells goods or services to another. For example, a manufacturer may sell its products to a wholesaler, or a software company may sell its software to an eCommerce retailer. These transactions often involve larger order volumes, longer sales cycles, and more complex purchasing decisions compared to B2C (Business-to-Consumer) transactions.

B2C

B2C is an acronym for business-to-consumer, which refers to transactions between a business and individual consumers. In a B2C transaction, a company sells goods or services directly to the final consumer. For example, a retailer may sell clothing to a customer, or a restaurant may sell food to a patron. These transactions are prevalent in retail eCommerce and typically involve smaller amounts of money and shorter-term relationships than B2B (business-to-business) transactions.

Essential Chargeback Terms: C

Buy Now Pay Later

Buy Now Pay Later (BNPL) is a payment structure allowing consumers to split payments over time without interest or with minimal interest rates. Approved users defer payment at checkout. Approval is based on credit history. Some services offer no interest for timely payments, with penalties for delays. Payments are managed via the BNPL provider's website or App. BNPL appeals to budget-conscious shoppers. Estimates indicate the US BNPL market will rise by 11.9% to $124.8 billion by 2027.

Card Issuer

A card issuer is a bank or credit union that provides credit cards, debit cards, or prepaid cards to consumers and businesses. The card issuer manages the billing and payment process for cardholders. These institutions give cardholders access to payment networks (like Visa or Mastercard) and manage accounts associated with those cards. They can equally operate as both issuers and card schemes, like Discover and American Express.

The card issuer extends credit to the cardholder, which the cardholder can use to make purchases. The card issuer charges interest on the outstanding balance, and the cardholder is responsible for repaying the borrowed funds. In a debit card arrangement, the cardholder's funds are directly linked to the card, and transactions are deducted from the cardholder's account balance.

Card Not Present

Card-Not-Present (CNP) is a transaction where the shopper did not physically present the payment card (such as a credit or debit card) to the merchant at the time of purchase. CNP transactions typically occur in online purchases, mail orders, or telephone orders, where the card details are manually entered or provided electronically. Due to the absence of physical card verification, CNP transactions are often considered at higher risk for fraud compared to Card-Present transactions.

As such, merchants and payment processors implement various security measures to authenticate the transaction and mitigate fraud and chargeback risks associated with CNP transactions. Such fraud prevention measures like 3D Secure authentication and address verification. Balancing security with a seamless customer experience is key in CNP transactions, ensuring both fraud prevention and customer satisfaction.

Card Present

Card-Present is a transaction where a customer physically presents their credit or debit card to a merchant at a point of sale (POS). The seller swipes or inserts the card into an EMV chip reader or taps it on a contactless terminal for payment. This method allows the merchant to visually verify the card's authenticity and the cardholder's identity. Card-present transactions typically have lower fraud risk than Card-Not-Present transactions due to the physical presence of the card during the transaction process

Card Verification Value (CVV)

Card Verification Value (CVV) is a security feature on credit, debit, and prepaid cards. It consists of a three or four-digit number printed on the card, distinct from the card number and encoded in the magnetic stripe. CVV helps verify that the cardholder has the physical card during card-not-present transactions, like online or over-the-phone purchases. Merchants use CVV to reduce fraud by ensuring the card details match the card in possession.

It is not stored in transaction records, adding an extra layer of security. CVV codes vary by card brand: Visa calls it CVV2, Mastercard uses CVC2, and American Express brands it CID. It differs from the PIN, which is used for ATM transactions and cardholder verification.

Cardholder

A cardholder is an individual who owns and is responsible for a credit, debit, or prepaid card issued by a financial institution. The cardholder is granted access to funds associated with the card and can withdraw the cash, use it to make purchases, or perform other transactions. Cardholders can be individuals or businesses. Cardholders often pay fees, charges, and interest related to using the card, depending on the terms of the agreement.

Card Network

A card network, a payment network, or a card association, is a financial network that processes electronic transactions between merchants and card issuers. Examples of card networks include Visa, Mastercard, American Express, and Discover. They provide the infrastructure for transactions between merchants, cardholders, and card-issuing banks, ensuring interoperability and security.

Key roles of a card network include transaction processing, authorization, settlement, and enforcing security standards like PCI DSS. Card networks earn revenue through transaction fees from merchants and, in some cases, fees from cardholders or issuers. They play a vital role in enabling widespread card usage, simplifying payments, and ensuring the integrity and security of electronic transactions worldwide.

Carding

Carding is when a cybercriminal uses stolen credit card information to purchase or withdraw funds without the cardholder's permission. The perpetrators, known as cardholders, illegally obtain credit card details through phishing, hacking databases, or purchasing them on the dark web. They then use these details to buy goods or services online, transfer money, or sell the information to others.

Chargeback

A chargeback is a forced transaction reversal by the cardholder's bank. A chargeback occurs when a consumer disputes a charge on their credit card statement and requests their card issuer to reverse the transaction.

Cardholders initiate chargebacks for several reasons, such as fraudulent transactions, where the cardholder claims they did not authorize the transaction; Item not received or significantly not as described, the cardholder claims the goods or services received were not what was promised or expected; and avoidable Merchant Error like double charges, incorrect amounts, or clerical mistakes. However, most chargeback cases are friendly fraud.

Chargeback Abuse

Chargeback abuse or friendly fraud is the misuse of the chargeback process by consumers to unjustly reverse legitimate transactions. Chargeback abuse involves filing frivolous or false disputes, such as claiming a transaction was unauthorized when it was fully authorized.

Chargeback abuse leads to significant financial losses for merchants unfairly debited for valid sales. They also incur chargeback fees and may face penalties from payment processors. Chargeback abuse also strains merchant-consumer trust and increases operational costs as businesses must allocate resources to manage disputes and investigate fraudulent claims.

Chargeback Accounting

Chargeback accounting is the periodic recording and management of financial transactions associated with chargebacks within a business's accounting systems. Several vital aspects of the business's financial records are affected when a chargeback happens. Initially recorded revenues from the transaction are reversed or adjusted to reflect the chargeback, impacting the income statement.

Correspondingly, accounts receivable balances are reduced or eliminated, directly affecting the balance sheet. Chargeback fees and other related expenses, like shipping or handling costs, are equally recorded as expenses, influencing the overall profitability and cost structure. Beyond financial impacts, adequate chargeback accounting facilitates detailed reporting and analysis. It enables businesses to identify trends, pinpoint potential fraud or customer service issues, and implement strategies to mitigate future chargebacks.

Chargeback Alert

A chargeback alert is a notification or warning provided to a merchant by a payment processor or a third-party service when a customer initiates a chargeback request. The purpose of chargeback alerts like Chargeflow Alert is to inform the merchant that a customer has disputed a transaction before the actual chargeback proceeds its course. That way, the merchant can take necessary actions, such as providing documentation to dispute the chargeback or communicating with the customer to resolve the issue directly. Chargeflow alerts help merchants respond to disputes swiftly to minimize losses, protect their reputation, and improve customer service.

Chargeback Cancellation

Chargeback cancellation is the reversal or withdrawal of a chargeback request initiated by a consumer against a merchant. Chargeback cancellation can occur when the customer decides to cancel the chargeback after resolving the issue directly with the merchant, receiving a refund, or receiving the correct product or service. Chargeback cancellation can also happen when the merchant successfully disputes the chargeback by providing evidence that the transaction was legitimate, such as proof of delivery or customer authorization.

When a chargeback is canceled, the original transaction is reinstated. However, merchants bear associated chargeback fees, except if you're dealing with Shopify or Stripe. Merchants benefit from chargeback cancellations as they retain the revenue from the original sale and avoid potential penalties or impacts on their reputation.

Chargeback Costs

Chargeback costs are direct and indirect expenses merchants incur whenever a customer disputes a credit card transaction and initiates a chargeback through their bank. The true cost of chargebacks typically includes the disputed amount, fees imposed by the credit card network, chargeback processing fees from the merchant's bank, opportunity forgone, brand impairment, and ancillary customer acquisition or service expenses. Chargebacks can result from fraud, customer dissatisfaction, or merchant errors. Excessive chargebacks lead to higher processing fees and potentially result in the termination of a merchant's account. Estimates suggest that for every $1 chargeback, merchants lose at least $3. Mastercard estimates that merchants incur $15 to $70 in operational costs for every card dispute.

Chargeback Defense

Chargeback Defense is every action merchants take to safeguard their business from payment fraud and eventual chargeback threats. Effective defense strategies include robust fraud detection and prevention measures, such as using AVS (Address Verification System) and CVV (Card Verification Value) checks during transactions and installing chargeback alerts that stop disputes from turning into chargebacks.

Chargeback Dispute

Chargeback Dispute is synonymous with chargeback representment, and it’s a process through which a merchant challenges a chargeback that a cardholder filed against their account. A chargeback dispute occurs when the merchant disagrees with the cardholder's reason for disputing the transaction and believes the charge is valid. During a chargeback dispute, the merchant submits evidence and a rebuttal letter to the acquirer (a clear, concise cover letter or evidence summary) to prove the charge is valid. If the dispute is successful, the card issuer will reverse the chargeback, and the merchant will retain the funds. If the dispute is unsuccessful, the card issuer will uphold the chargeback, and the merchant will lose the funds.

Chargeback Fee

A chargeback fee is a cost imposed on merchants by banks or payment processors when a customer disputes a transaction and initiates a chargeback. These fees typically range from $20 to $100 per chargeback and are intended to cover administrative costs associated with dispute processing. Chargeback fees are charged regardless of the outcome of the dispute, meaning merchants incur this cost even if they successfully defend against the chargeback. Merchants in the “high risk” category pay penalties ranging from $5000 to $25,000.

Chargeback Fraud

Chargeback fraud, also known as friendly fraud, first-party fraud, or chargeback abuse, occurs when a customer falsely disputes a legitimate transaction with their bank or credit card issuer. Chargeback fraud happens for various reasons, such as a customer forgetting a purchase, misunderstanding a charge, or deliberately attempting to obtain goods or services without paying for them.

Preventive measures against chargeback fraud include verifying customer information, using fraud detection tools, maintaining clear transaction records, providing excellent customer service to resolve disputes promptly, and automating chargeback disputes.

Chargeback Guarantee

Chargeback Guarantee is a fraud prevention model where your service provider promises to pay for transaction disputes that turn into chargebacks. The vendor guarantees financial protection from payment disputes by paying for dispute resolution from their pocket. The process usually involves you creating an account with the vendor's platform. The vendor then evaluates payment requests using analyzed data to approve or reject them.

After a successful payment, if the customer requests a chargeback, the vendor manages any resulting financial losses. The paper-promise is that they'll take responsibility for any chargeback you incur. Chargeback Guarantee service providers have been criticized for a conflict of interest. Many argue that efforts to decrease the dollar value of refunded chargebacks increase the risk of false positives. Unlike automated chargeback systems, they might overly restrict low-risk payments. This reduces sales and your company's profitability and indirectly alienates customers.

Chargeback Insurance

Think of chargeback insurance like the traditional insurance policy. You pay a monthly premium to a service provider for coverage against unexpected costs, which, in this case, is chargeback cost and the applicable fees. The caveat is that while chargeback insurance helps reduce the costs of payment disputes, it does not provide comprehensive protection and coverage for all instances of chargeback issuance.

For example, unlike chargeback automation, which protects you against all cases, chargeback insurance does not protect against most friendly fraud disputes. Moreover, exceeding the predefined chargeback limit affects the extent of protection and coverage provided.

Chargeback Management

Chargeback management refers to strategies, processes, and tools merchants use to prevent, reduce, and resolve chargeback issuance. Chargeback management has a string of activities -- which are often performed by distinct teams. These include improving customer service, enhancing fraud detection, and responding to/resolving disputes promptly. Effective chargeback management helps protect revenue and profitability, enriches customer satisfaction, and maintains positive relationships with payment partners.

Chargeback Mitigation

Chargeback mitigation refers to strategies merchants use to reduce chargeback occurrence and impact on business. Chargeback mitigation strategies include fraud prevention, customer service, product quality enhancement, clear communication, and chargeback automation.

Chargeback Prevention Alerts

Chargeback prevention alerts are notifications sent to merchants to help them prevent chargebacks before they become full-blown. These alerts provide information about potential disputes, allowing merchants to take action and proactively resolve the issue.

The acquiring bank, the card issuer, or a third-party chargeback management service like Chargeflow provides chargeback prevention alerts. By receiving chargeback prevention alerts, merchants can take determined measures to prevent chargebacks and minimize the impact on their business. This can include reaching out to customers to resolve disputes or fraudulent activities before they escalate into chargebacks or making changes to their processes or systems to reduce the risk of chargebacks.

A chargeback prevention alert system helps merchants improve their chargeback management processes, reduce the number of chargebacks they receive, and minimize the costs and damages associated with chargebacks.

Chargeback Process

Chargeback Process is a mechanism through which payment disputes are resolved. Credit card networks and banks established the chargeback process to enable cardholders to dispute transactions and request refunds directly from their card issuer. Merchants can then either accept or contest these disputes to resolve them.

Upon receiving a dispute, the bank investigates, often providing temporary credit to the cardholder during the inquiry. The merchant is then notified and can respond with evidence supporting the transaction's validity. The bank reviews all evidence from both parties to make a decision, either upholding the chargeback and refunding the cardholder or rejecting it in favor of the merchant. If either party disagrees with the decision, arbitration through the credit card network is an option. The exact chargeback process and timeline may vary depending on the card network and the country in which the transaction took place.

Chargeback Rate

​​Chargeback rate, also known as chargeback ratio or chargeback-to-transaction ratio, is a metric that measures the percentage of transactions that result in chargebacks out of the total number of transactions processed by a merchant within a specific period. Payment processors and credit card networks use chargeback ratios to assess the level of risk associated with a merchant's operations.

A high chargeback rate is usually proof of fraud, poor customer service, or disputes over product quality or delivery. You can calculate your chargeback rate by dividing the number of chargebacks a merchant has received in a given period by the total number of transactions processed during that period. For example, if you processed 1,000 transactions and received ten chargebacks, your chargeback rate would be 1%. Payment processors and credit card networks have thresholds for acceptable chargeback rates, and exceeding these thresholds can result in financial penalties, increased processing fees, or even the termination of the merchant's account.

Chargeback Reason Code

Chargeback reason codes are alphanumeric identifiers banks and card brands use to categorize exact reasons for cardholder disputes. Each code corresponds to a specific issue, such as unauthorized transactions, goods or services not received, or quality-related disputes. Chargeback reason codes also help merchants formulate appropriate dispute responses and recover lost revenue. Banks require sellers to dispute chargebacks according to the codes provided. Understanding the reason why chargebacks happen can help you prevent future cases.

Chargeback Recovery

Chargeback recovery is the process of disputing and reversing false chargebacks initiated by customers against merchants. Merchants do this through the chargeback representment process, which involves understanding the reason codes for chargebacks, gathering compelling evidence such as proof of delivery or customer communication records, and submitting a thorough response within the specified timeframe – or automating the entire process to recover disputes without lifting a finger. Timeliness is critical in chargeback recovery processes, as delayed responses can lead to automatic losses for the merchant.

Chargeback Reversal

Chargeback reversal occurs when a disputed transaction, initially charged back, is successfully overturned in favor of the merchant after investigation and submission of compelling evidence. While chargeback reversal is an uphill battle, writing off chargebacks as Cost of Goods Sold is simply not viable, especially if you aim for long-term business success. Businesses must contest every invalid chargeback. Successful chargeback reversals help merchants recover lost revenue and maintain a positive reputation with payment processors. It also ensures you can keep your merchant account as every chargeback affects your chargeback ratio.

Chargeback Threshold

A chargeback threshold is the allowable limit of chargebacks a merchant can receive before facing penalties or restrictions from payment processors and card networks. Card network chargeback thresholds typically range from 0.5% to 1% of total transactions. Exceeding this threshold can result in higher fees, increased transaction scrutiny, or even suspension of payment processing services.

Chargeback Threshold Monitoring

Chargeback threshold monitoring involves regularly tracking the ratio of chargebacks to total transactions to ensure compliance with stipulations set by payment processors and card networks. Card networks require merchant-acquiring banks to monitor and report the chargeback threshold ratios of their merchants, taking necessary action if these ratios exceed predetermined levels.

Chargeback Time Limit

The chargeback time limit is the timeline established by card networks within which a cardholder can dispute a transaction with their card issuer. Chargeback time limits typically range from 60 to 120 days from the transaction date or the expected delivery date of goods/services. Chargeback response time limit on the other hand refers to the deadline by which a merchant must respond to a chargeback notification from a card issuer. Card network chargeback response time limits range from 7 to 14 days, depending on the card network and the reason for the chargeback.

ChargeResponse

ChargeResponse® is a proprietary autonomous dispute response generator from Chargeflow that provides quick and qualitative results in milliseconds and assembles the world's most robust dispute response using 50+ different data points and AI and Machine Learning algorithms. The result is a thorough, evidence-based dispute response with the highest win rates across the industry.

Generating a dispute response might sound easy, but it certainly isn’t. There are over 100 chargeback reasons across credit card networks, and each one requires a unique set of compelling evidence. Keeping tabs on these ever-changing trends is a nightmare, which makes chargeback mitigation an uphill battle for merchants. ChargeResponse algorithms analyze any chargeback reason to form best-in-class chargeback evidence based on hundreds of variables, from integrated frameworks to third-party sources.

ChargeScore

ChargeScore® is an advanced dispute success-rate analysis algorithm developed by Chargeflow. The system uses real-time data, big data analytics, and machine learning algorithms to predict the likelihood of winning a dispute. Using factors like dispute reason, issuing bank, available evidence, third-party data, and the merchant's historical win rates, ChargeScore® enhances the chargeback mediation process significantly.

Through this informed approach, merchants can effectively increase their dispute win rates from the industry average of 12% to as high as 75%. This capability empowers merchants to make strategic decisions and take proactive steps to mitigate chargebacks effectively, thereby safeguarding revenue and maintaining positive relationships with customers and financial institutions.

Clearing to Capture

Clearing to capture is a critical phase in payment processing where authorized transactions progress from initial authorization to final settlement. It involves verifying transaction details, ensuring compliance with payment network rules, and preparing transactions for settlement. This process confirms the validity of transactions before funds are transferred from the cardholder's account to the merchant's account.

Efficient clearing to capture is essential for minimizing errors, reducing the risk of chargebacks, and optimizing transaction processing timelines. By accurately clearing transactions, merchants and payment processors can streamline financial reconciliation, enhance transaction security, and maintain smooth operations. Clearing to capture is crucial in ensuring that authorized transactions proceed smoothly through the payment lifecycle, from initial approval to the final settlement of funds.

Co-Branded Cards

Co-branded cards are credit cards issued in collaboration between a financial institution and a specific company or organization, like a retailer or airline. They prominently display both partners' branding and offer unique benefits tailored to the partner's products or services. Cardholders enjoy rewards such as points, discounts, or special offers related to the partner company, appealing particularly to loyal customers of the brand.

These cards are marketed jointly to attract customers who value the combined benefits and aim to enhance brand loyalty. While the financial institution handles card issuance, account management, and transactions, the partner company promotes the card to its customer base. Co-branded cards effectively leverage the strengths of both partners, providing targeted rewards and fostering customer retention through exclusive benefits and rewards programs.

Compelling Evidence

Chargeback compelling evidence is documentation or other proof submitted by a merchant as part of a chargeback dispute to support their case and prove a transaction's validity. The evidence must be persuasive and demonstrate that the transaction was authorized, the goods or services were delivered as described, and the cardholder received value for their purchase.

Compelling evidence in chargeback disputes includes proof of delivery, transaction receipts, customer communication logs, and relevant policies or terms of service. Its purpose is to verify the legitimacy and fulfillment of transactions, demonstrating authorization by the cardholder and adherence to agreed terms. Successfully presenting compelling evidence is critical for overturning chargebacks and avoiding financial losses.

Credit Receipt or Credit Transaction Receipt

A credit receipt, also known as a credit memo, credit note, or credit transaction receipt, is a document issued by a seller to acknowledge the return of goods or services or to adjust the amount owed by the buyer. A credit receipt serves several purposes. It helps merchants record returned items due to defects or customer dissatisfaction, adjust accounts receivable, and provide a legal record for tax and audit purposes.

Key details typically included in a credit receipt are the original transaction date, description of returned items, reason for return, and the credited amount. These receipts are essential for maintaining accurate financial records and facilitating transparent transactions between buyers and sellers.

Cross Border Payments

Cross-border payments involve financial transactions between entities in different countries, encompassing payments for goods, services, investments, and remittances. These transactions face challenges such as currency exchange rates, regulatory compliance, and varying banking systems, influencing costs and processing times. Methods for cross-border payments include banks, payment processors, international wire transfers, and digital platforms, each with associated fees and regulations.

Technological advancements like blockchain and digital wallets have improved efficiency and reduced costs in cross-border payments. Compliance with international regulations, including anti-money laundering laws, is crucial for legal and secure transactions.

Customer Dispute

A customer dispute in payment transactions occurs when a consumer questions a charge on their account statement, typically due to unauthorized transactions, billing errors, or dissatisfaction with goods/services. Consumers initiate disputes by contacting their bank or credit card issuer, triggering an investigation where the issuer may request documentation from the merchant.

Regulations like the Fair Credit Billing Act protect consumers by outlining procedures for resolving disputes and limiting liability for unauthorized charges. Merchants are notified of disputes and must respond with evidence to defend the transaction's validity. Effective dispute resolution balances consumer protection with fair treatment for merchants, ensuring transparency and accountability in payment transactions.

Consumer Clarity

Consumer clarity is the level of understanding and transparency a consumer has about a product, service, or transaction. It involves clear and concise communication of pricing, terms and conditions, product features and benefits, and potential risks or limitations. Consumer clarity is essential for building trust and confidence between consumers and businesses and ensuring that consumers can make informed decisions about their purchases.

Having high levels of consumer clarity helps to prevent misunderstandings, disputes, and chargebacks, as it allows consumers to fully understand what they are buying and what they can expect. It also protects consumers from potential scams or deceptive practices. In short, consumer clarity is vital to fostering a fair and trustworthy marketplace where consumers and businesses can transact confidently.

Customer Service

Customer service is any support a merchant provides to customers before, during, and after a purchase. It involves addressing customer needs and ensuring customer satisfaction with a product or service. Customer service can take many forms, including phone support, email support, live chat, or in-person interactions. The goal of customer service is to provide a positive customer experience and to build customer loyalty. This can be achieved by providing accurate information, resolving issues efficiently, and handling customer complaints in a professional and empathetic manner.

Essential Chargeback Terms: D-E

Data Security

Data security is the practice of protecting digital information from unauthorized access, use, disclosure, destruction, modification, or disruption. This involves a set of policies, technologies, tools, and procedures that organizations implement to secure data from a wide range of threats, including hacking, phishing, malware, and theft. Data security aims to ensure the confidentiality, integrity, and availability of sensitive information, such as personal information, financial data, and confidential business information. This includes protecting data in storage (such as on servers and hard drives) and in transit (such as when transmitted over a network). Adequate data security requires ongoing efforts to stay up-to-date with the latest threats and to improve security measures continuously.

Data Filling

Data filling is providing additional information or evidence to support a merchant's position in a chargeback dispute. This includes filling out dispute forms and providing transaction receipts, shipping records, customer service logs, and other relevant documentation that can help prove that the transaction was authorized and legitimate. Data filling aims to ensure that all relevant information is included in a dispute claim so that the card issuer can make an informed decision. Effective data filling increases the chances of a successful dispute resolution and reduces the risk of chargebacks.

Delegated Authentication

Delegated authentication involves one system relying on another to handle user authentication. When users try to access a service, the system redirects them to a trusted authentication provider. After the user logs in with the provider, the provider issues a token verifying the user’s identity. The user is then redirected back to the original service with this token. The service verifies the token with the provider before granting access.

This method simplifies user management, enhances security by offloading credential handling to trusted providers, and enables Single Sign-On (SSO) for easier access across multiple services. Standard protocols for delegated authentication include OAuth and OpenID Connect for web and mobile applications and SAML for enterprise SSO. Overall, Delegated authentication streamlines authentication processes and improves security by leveraging specialized services for identity verification.

Digital Wallet

A digital wallet, or e-wallet, is a technology that allows users to store and manage payment information electronically on their smartphones or other digital devices. Users add payment details like credit or debit card information to the wallet app. For transactions, they can use features like Near Field Communication(NFC) to tap and pay at contactless terminals or enter payment details online or in-app.

Digital wallets enhance security through encryption, biometric authentication, and tokenization, which help protect financial data and reduce the risk of fraud. They also offer features for expense tracking, managing various payment methods, and integrating with loyalty programs. Digital wallets provide a convenient and secure alternative to carrying physical cards. Examples include Apple Pay, Google Wallet, and Samsung Pay.

Dispute

A dispute is a situation where a cardholder challenges a transaction they believe is incorrect or fraudulent. The cardholder contacts their bank or payment provider to file a dispute, providing evidence for their claim. The bank or processor then investigates, which may involve the merchant's input. In the payment industry, disputes are often used synonymously with chargebacks. However, a dispute can be framed as the preliminary stage of the chargeback process. Depending on the outcome, the disputed amount may be refunded to the cardholder or upheld as a valid transaction.

Dispute Management

Dispute management is addressing cardholder disputes initiated with their issuer, leading to a payment reversal. The process starts when the cardholder files a chargeback request with their bank, often due to fraud or transaction issues. Effective dispute management ensures speedy chargeback processing, minimizes merchant loss, and maintains customer satisfaction.

Dispute Response

Dispute response is the steps a business takes in answering a dispute or claim made by a customer or cardholder about a transaction made with a payment card. The dispute response or representment process typically involves gathering and presenting evidence to support the merchant's position, such as transaction receipts, shipping records, and customer service logs. The goal of dispute response is to resolve chargeback disputes on time and cost-effectively while protecting the rights of both the cardholder and the merchant. Chargeback automation is central to effective dispute response strategies. It reduces chargeback risks and minimizes the impact of disputes on a business's bottom line.

Dynamic Currency Conversion (DCC)

Dynamic Currency Conversion (DCC) allows international customers to pay for transactions in their home currency. At the point of sale, customers are given the option to choose their home currency, and the transaction amount is converted in real-time using an exchange rate provided by the DCC service. While DCC offers convenience and transparency by showing the amount in the customer’s home currency, it may come with higher fees and less favorable exchange rates, compared to local currency payments.

eCommerce

eCommerce, or electronic commerce, is the activity of buying and selling goods and services over the Internet. eCommerce includes various models such as online retail, where businesses sell directly to consumers through websites or apps (e.g., Amazon, eBay); marketplace platforms that host multiple sellers (e.g., Etsy, Alibaba); and digital products like software or eBooks.

eCommerce also includes subscription services offering recurring access to products or services (e.g., streaming platforms, subscription boxes), and B2B transactions where businesses trade with other businesses online. This mode of commerce provides global reach, operates 24/7, and offers convenience for buyers and sellers. It leverages technologies like payment gateways, shopping carts, and online marketing tools to facilitate transactions and enhance the customer experience.

EMV Chip Card

An EMV chip card is a payment card with a microchip embedded to enhance security and reduce fraud. EMV, standing for Europay, MasterCard, and Visa, is the security standard developed by these card networks. The chip generates a unique transaction code for each purchase, making it difficult for fraudsters to clone the card compared to magnetic stripe cards.

During a transaction, the chip communicates with the card reader to authenticate the card and verify its validity using encryption and dynamic codes. The card is inserted into a chip-enabled terminal, which securely processes the payment. EMV chip cards offer improved security features and are more resistant to data breaches and card skimming than traditional magnetic stripe cards.

Encryption

Encryption is a critical security measure in payment processing designed to protect sensitive information and prevent chargebacks. It involves converting payment data, such as credit card details, into a secure, unreadable format using cryptographic algorithms. Even if the data is intercepted, it cannot be easily accessed or used by unauthorized parties. Data encryption helps reduce the risk of fraud and unauthorized access by safeguarding payment information during transactions, which minimizes the likelihood of chargebacks.

Essential Chargeback Terms: F-G

Fraud Detection

Fraud detection is a crucial aspect of financial security, aiming to identify and prevent fraudulent activities that often turn to chargebacks. Fraud detection involves various techniques and technologies to protect individuals and organizations from financial loss and data breaches. Machine learning and AI, including supervised and unsupervised learning, enhance detection by predicting and recognizing fraudulent behavior. Behavioral analysis, such as monitoring user activities and biometric verification, helps identify deviations from normal patterns. Rule-based systems set thresholds to flag suspicious transactions, while network analysis uncovers fraud networks and connections. Fraud detection tools integrate these methods, providing real-time alerts and comprehensive monitoring. Key fraud detection challenges include adapting to evolving fraud tactics, balancing detection with data privacy, and minimizing false positives or negatives.

Fraud Prevention

Fraud prevention is stopping fraud before it happens by implementing proactive measures. Fraud prevention measures include conducting thorough risk assessments and applying controls to manage identified risks. Employee training and awareness programs help staff recognize and prevent fraud.

Securing systems with strong authentication, data encryption, and regular updates is another fraud prevention measure, protecting sensitive information. Fraud prevention tools, such as real-time transaction monitoring and specialized software, help block suspicious activities.

More so, establishing clear policies, an incident response plan, and conducting regular audits enhance overall security. Managing vendors and third parties with due diligence and secure contracts further mitigates risk. Additionally, educating customers on fraud protection and encouraging secure communication practices are essential. Organizations can effectively reduce the likelihood of fraud and safeguard their assets and data by combining these strategic measures.

Fraudulent Transaction

A fraudulent transaction is an illegal act where financial transactions are manipulated to gain unauthorized benefits or steal money. Examples of fraudulent transactions include credit card fraud, identity theft, phishing scams, and account takeovers. These transactions often involve deceptive tactics, such as fake identities or phishing emails.

Friendly Fraud

Friendly fraud, or chargeback fraud, occurs when a legitimate customer disputes a credit card charge, claiming it was unauthorized or that they did not receive the product or service. Unlike traditional fraud, friendly fraud involves customers who made the purchase but seek to reverse the transaction to avoid payment, often due to buyer's remorse, greed, or other reasons. Friendly fraud negatively impacts merchants by causing financial losses and incurring additional fees. Our research shows that 80% of all chargebacks are friendly fraud.

Gateway

Gateway is a technology that facilitates secure online transactions between a customer and a merchant. It acts as a bridge between the merchant's website and the financial institutions involved in processing payments. When a customer makes a purchase, the payment gateway encrypts the payment information, such as credit card details, and transmits it to the payment processor. The processor then verifies the payment details with the bank or card issuer, and the gateway sends the authorization response back to the merchant's site.

This process ensures that sensitive financial information is handled securely and efficiently. Payment gateways also handle various functions, including fraud detection, transaction reporting, and integration with different payment methods (e.g., credit cards or digital wallets). They are crucial for eCommerce businesses, providing a seamless and secure payment experience for customers.

Global Merchant

A global merchant is an entity or individual engaged in international trade. That involves the buying and selling of goods and services across borders. The role of a global merchant includes activities like importing and exporting products, running global eCommerce platforms, and managing international supply chains.

Global merchants navigate various challenges, including currency exchange and compliance with international regulations. Their operations contribute to the global economy by connecting markets and facilitating cross-border transactions, thereby expanding business opportunities and fostering international economic growth.

Essential Chargeback Terms: H-I

Independent Sales Organization (ISO)

An Independent Sales Organization (ISO) is a third-party company that partners with financial institutions or payment processors to sell their payment processing services to merchants. ISOs act as intermediaries, helping businesses set up credit card processing, point-of-sale systems, and other payment solutions. They handle sales and customer service and often provide additional support like training and technical assistance.

ISOs earn revenue through commissions or fees from the transactions they facilitate. Their role is crucial in expanding the reach of payment processing services and assisting merchants in managing their payment systems efficiently.

Interchange

Interchange refers to the fees banks and financial institutions charge each other for processing credit and debit card transactions. When a customer makes a purchase using a credit or debit card, the transaction involves multiple parties, including the cardholder's bank (issuer), the merchant's bank (acquirer), and the card network. The merchant acquirer pays interchange fees to the card issuer as compensation for the risk and cost of issuing the card and handling the transaction. These fees are a key component of the overall cost structure of card payments and influence transaction costs for merchants and consumers.

Invalid Chargeback

An invalid chargeback occurs when a customer disputes a credit or debit card transaction, but the dispute is found to be without merit or not by card network rules. This situation can arise for various reasons, such as insufficient evidence provided by the customer, filing the dispute outside the allowable time frame, or the reason for the dispute not being eligible under the card issuer’s guidelines. Invalid chargebacks are dismissed, and the transaction amounts are reinstated to the merchant’s account.

Issuer

An issuer is a financial institution or bank that provides credit or debit cards to consumers. The issuer manages the cardholder's account, including issuing cards, setting credit limits, processing transactions, and handling billing and payment. When a cardholder makes a purchase, the issuer authorizes the transaction, ensuring the cardholder has sufficient funds or credit. The issuer also handles customer service issues related to the card, such as fraud protection and dispute resolution. In addition, the issuer earns revenue through interest on outstanding balances, annual fees, and transaction fees.

Issuer Decline Code

An issuer decline code is a cardholder's issuing bank's response to a transaction processing request indicating why a transaction was declined. These codes provide specific reasons for the decline, helping merchants and payment processors understand and address the issue. Standard decline codes include "Insufficient Funds," which means the cardholder does not have enough available credit or funds; "Expired Card," indicating the card has passed its validity date; "Incorrect PIN," where the entered PIN is incorrect; "Fraudulent Activity," flagging the transaction as suspicious; and "Card Not Activated," meaning the card has not been activated by the cardholder. These codes help merchants take appropriate actions, such as contacting the buyer to resolve issues or correcting transaction details to facilitate successful payments.

Essential Chargeback Terms: J-L

Know Your Customer (KYC)

Know Your Customer (KYC) is a process used by financial institutions to verify the identity of their clients and assess potential risks. KYC processes are essential for preventing financial crimes such as fraud, money laundering, and terrorist financing. KYC typically involves collecting and validating identification documents like passports or driver’s licenses to confirm a customer’s identity. It also includes performing due diligence to evaluate the customer's financial behavior and background. Additionally, ongoing monitoring of transactions and activities helps detect any suspicious behavior. By implementing KYC procedures, institutions ensure regulatory compliance and protect the integrity of the financial system, helping to mitigate risks associated with financial crimes and fraudulent activities.

Liability Shift

Liability shift is the transfer of responsibility for financial losses or fraud from one party to another. For example, with the introduction of EMV chip technology, liability for fraudulent transactions shifted from card issuers to merchants who failed to use EMV-compliant terminals. This means if a merchant processes a transaction with a magnetic stripe card instead of a chip card and it turns out to be fraudulent, the merchant may bear the financial loss.

Similarly, in eCommerce, liability may shift to merchants who do not implement secure authentication methods like 3D Secure, leaving them responsible for fraud if these measures are not used. Liability shift mechanisms are designed to incentivize the adoption of secure payment practices and technologies, aiming to reduce fraud and protect all parties involved in financial transactions.

Essential Chargeback Terms: M

Merchant

A merchant is a person or business involved in buying and selling goods or services. Historically, merchants facilitated trade by connecting producers with consumers. Today, the term covers various business activities, including retail and wholesale operations. Retail merchants sell directly to consumers, while wholesale merchants deal in bulk transactions with retailers. Service merchants provide intangible services rather than physical products. Merchants are integral to commerce, handling transactions, managing customer relationships, and leveraging technology to enhance sales.

Merchant Account

A merchant account is a type of bank account that allows businesses to accept and process payments, particularly credit and debit card transactions. Merchant accounts act as an intermediary between a business's bank and the card networks. When a customer makes a payment, the merchant account processes the transaction and ensures the funds are transferred to the business’s bank account.

To obtain a merchant account, businesses must provide details about their operations, credit history, and expected transaction volume. Merchant accounts can be offered by banks, payment processors, or specialized financial institutions. They often come with fees for transactions, setup, and maintenance.

Merchant Category Code (MCC)

A Merchant Category Code (MCC) is a four-digit number assigned by credit card companies to categorize businesses based on their primary activities. MCCs facilitate transaction processing and classification, helping to streamline payment systems and financial reporting. For example, MCC 5411 is used for grocery stores, while MCC 5812 designates restaurants. These codes are essential for various functions, including fraud detection, eligibility for credit card rewards or benefits, and targeted marketing. They also assist in analyzing spending patterns and ensuring regulatory compliance. MCCs enable more accurate tracking and management of business expenses and customer spending.

Merchant Fraud

Merchant fraud involves deceptive practices by businesses to illegally gain financial benefits or mislead customers and financial institutions. Instances of merchant fraud include recording false transactions to claim extra funds, selling phantom goods that don’t exist, using stolen identities to open merchant accounts or process transactions, and refund fraud, where businesses issue fake refunds to siphon money. Merchant fraud can lead to significant financial losses, legal consequences, and harm to a business’s reputation. To combat these issues, financial institutions and payment processors use various fraud detection and prevention strategies, such as monitoring transaction patterns, verifying merchant details, and implementing secure payment systems.

Merchant Identification Number (MID)

A Merchant Identification Number (MID) is a unique code assigned to a business by its payment processor or acquiring bank when it opens a merchant account. This number is essential for tracking and managing transactions processed through the account. It allows payment processors to correctly route payments, reconcile transactions, and ensure accurate financial reporting. The MID also plays a role in fraud prevention by helping to monitor and detect unusual or suspicious activity. MID is also used for account management, facilitating communication between the merchant and financial institutions.

Meritless Chargeback

A meritless chargeback occurs when a customer disputes a transaction without reasonable cause or justification, meaning the cardholder is disputing a valid transaction. This typically happens when the dispute is based on misunderstandings, such as dissatisfaction with a product or service, or when the customer is simply trying to avoid payment.

Monitoring Program

Monitoring Programs are systems established by card networks to ensure merchants can keep their fraud and chargeback issues within acceptable levels. If a merchant goes beyond the acceptable fraud or chargeback thresholds established by each network, such as Visa and Mastercard, they move the merchant into one of their monitoring programs.

The monitoring program attracts monthly fines and additional fees until the merchant can sustainably reduce their dispute or fraud levels. Failure to actualize that objective within the given timeline can result in payment processing rights reversal, thereby putting your business in jeopardy.

Essential Chargeback Terms: N-O

Payment Card Industry Data Security Standard (PCI DSS)

Payment Card Industry Data Security Standard (PCI DSS) is a set of security requirements created to protect sensitive cardholder data and ensure the secure handling of payment card information. Developed by the Payment Card Industry Security Standards Council (PCI SSC), PCI DSS applies to all entities that process, store, or transmit cardholder information.  

PCI DSS includes several critical requirements to safeguard cardholder data. Under the PCI DSS condition, organizations must build and maintain a secure network using firewalls, secure configurations, and network segmentation. Organizations must protect cardholder data through encryption in transit and at rest and secure storage practices. A robust vulnerability management program is essential, involving regular updates of anti-virus software and the development of secure applications.

Payment Facilitator (PayFac)

A Payment Facilitator (PayFac) simplifies payment processing for merchants by acting as an intermediary between them and payment networks. Instead of each merchant needing a separate account, PayFacs aggregates multiple merchants under one account, managing underwriting, risk, and compliance. They handle transaction processing, including authorization and settlement, while providing technical integration like APIs and payment gateways. PayFacs assumes some risk, monitoring transactions for fraud and ensuring regulatory compliance. Merchants benefit from streamlined onboarding and processing, often with lower setup costs. PayFacs charge fees for their services, which can include transaction and monthly fees. This model is particularly advantageous for small to mid-sized businesses that need an efficient, cost-effective payment solution.

Payment Gateway

A payment gateway is a technology that processes online transactions by securely transmitting payment details from a merchant’s website or point-of-sale system to the payment processor. It encrypts and sends the payment information for authorization, checks with the customer’s bank or card issuer, and returns the approval or denial response to the merchant. This enables merchants to complete sales or handle errors efficiently. Payment gateways integrate with various platforms, providing security features to protect payment information and prevent fraud, ensuring a smooth and secure transaction experience for merchants and customers.

Payment Network

A payment network is a financial infrastructure that facilitates transactions between consumers, merchants, and financial institutions. These networks handle transaction processing, authorization, and settlement, ensuring that funds are transferred securely from the payer to the payee. Key segments include card issuers, who provide cards to consumers; acquirers, who manage merchant accounts and process payments; payment processors, who handle transaction processing and authorization; and payment gateways, who securely transmit transaction information between merchants and processors.

Payment networks play crucial roles in ensuring transaction security. They also facilitate cross-border payments and support various payment methods, contributing to global commerce and financial inclusion.

Payment Processor

A payment processor is a company that specializes in facilitating electronic payments for merchants. The payment processor is a liaison between the merchants, the acquiring bank, and the credit card networks. The payment processor is responsible for handling the technical aspects of the transaction, such as securely transmitting payment information, obtaining authorization for payments, and settling the transactions. Payment processors play a critical role in enabling merchants to securely accept and process electronic payments from customers, and they are an essential part of the eCommerce infrastructure.

Payment Service Provider (PSP)

A Payment Service Provider (PSP) is a company that offers a range of payment processing services, including transaction authorization, processing, and settlement, to merchants and businesses, often integrating various payment methods into a single platform. A Payment Service Provider (PSP) not only facilitates the processing of transactions but also provides additional services such as fraud detection, payment gateway integration, and reporting tools, helping merchants manage and streamline their payment operations across multiple channels and payment methods.

Pay-Outs

Pay-outs are disbursements of funds from customer transactions into the business owner's account. After a customer makes a payment, the processor deducts applicable payment processing fees and transfers the remaining amount to the business owner's designated bank account. This process usually involves a settlement period, which can take a few hours to several days, depending on the processor's policies. Business owners can choose the frequency of these transfers, such as daily, weekly, or monthly, providing flexibility in managing cash flow. Fees and processing times vary among different payment processors.

PIN

A PIN (Personal Identification Number) is a confidential number used to authenticate a credit or debit card transaction. A PIN is used to verify the cardholder's identity and ensure that the person using the card is authorized to make the transaction. The cardholder is required to enter the PIN at a point-of-sale terminal, an ATM, or a similar device when making a purchase or accessing their account.

Pre-Arbitration

Pre-arbitration is the final opportunity for the merchant and the issuing bank to resolve a chargeback before arbitration takes place, at which point the card network will issue a final ruling. When a cardholder disputes a transaction, the merchant and card issuer engage in a process to resolve the issue. Pre-arbitration occurs after the initial chargeback and represents an attempt to settle the dispute before it proceeds to arbitration.

During this stage, the merchant has the opportunity to provide additional evidence or offer a resolution to the cardholder's complaint. If the cardholder and merchant reach a mutual agreement, the chargeback is reversed or settled. If not resolved, the dispute advances to arbitration, where a final decision is made by the card network.

Prevention Measures

Prevention Measures refer to strategies and actions taken to avoid or minimize the likelihood of negative outcomes, such as disputes, fraud, or financial losses. Prevention measures are designed to proactively address potential risks and issues before they occur.

Processing Fees

Processing Fees are charges for handling and managing financial transactions, typically imposed by payment processors, merchant account providers, or credit card networks. These fees can include transaction fees (a percentage or flat amount per transaction), authorization fees, settlement fees, and monthly account maintenance fees. Processing fees are calculated based on a percentage of the transaction amount, a flat fee per transaction, or a combination of both. These fees cover the costs of providing transaction services, risk management, and operational expenses. They impact businesses by affecting profitability and may lead to adjustments in pricing or choice of payment processors.

Processing Right

Processing rights are rights merchants and acquirers have to process transactions and manage disputes following card network rules and regulations. In payment card transactions, processing rights determine who handles transactions and disputes. They set the standards for processing transactions, including handling fraud, chargebacks, and disputes.

Processing rights are granted by card networks, such as Visa and Mastercard, to merchants and acquirers who meet their standards and requirements. These rights allow merchants and acquirers to process transactions, manage disputes, and access the network's processing and settlement systems.

Processing rights are essential for merchants and acquirers who wish to accept payment cards, as it allows them to participate in the payment card system and access the benefits and protections offered by the card networks.

Processor Fee

Processor fees are charges imposed by payment processors for handling financial transactions. These fees include transaction fees (a percentage or fixed amount per transaction), authorization fees, settlement fees, and monthly account fees. They cover the costs of processing payments, risk management, and operational expenses. Processor

Push-To-Card

Push-to-Card is a financial service feature that makes payments and transfers more convenient. Push-to-card is a financial service that transfers funds directly onto a payment card, such as a debit or prepaid card. Users initiate a transfer from their bank account or financial app, and the funds are quickly loaded onto the card. This process allows instant access to money. It’s commonly used for payroll deposits, insurance payouts, and other quick disbursements, providing a faster and more convenient alternative to traditional bank transfers or checks.

Essential Chargeback Terms: Q-R

QR Code

A QR code (Quick Response code) is a two-dimensional barcode that stores information, often in text, URLs, or other data. It consists of black squares arranged in a square grid on a white background, which can be scanned by a smartphone or QR code reader. When scanned, it quickly directs users to a website, displays text, or performs other actions based on the encoded information. QR codes are used for various applications, including marketing, ticketing, payments, and product tracking, due to their ease of use and ability to store diverse data types (see a guide from Uniqode's QR Code Generator).

Rapid Dispute Resolution

Rapid Dispute Resolution (RDR), is one of the ways Visa helps merchants optimize their refund and chargeback processes for more effective dispute remediation. With RDR, merchants can respond to a dispute within 48 hours, providing evidence to support their case. Documentation deemed compelling evidence can include receipts, invoices, or other drafts showing the cardholder authorized the disputed transaction and delivery of goods or services as promised.

If the merchant's response meets that objective, dispute resolution will be in their favor, with the chargeback rejected. But if the merchant's response is invalid, the chargeback will proceed. RDR also gives merchants real-time alerts of potential disputes, allowing them to proactively address and resolve issues before they result in a chargeback. Additionally, merchants can access detailed dispute information and case history, providing valuable insights into their transaction disputes and helping them identify and prevent future disputes.

Real-Time Payments

Real-Time Payments (RTP) is a payment system that allows transactions to be processed and settled instantly or within seconds, 24/7. Unlike traditional payment methods, which can take hours or even days to complete, RTP systems ensure that funds are transferred and made available to the recipient immediately. This system is particularly beneficial for urgent transactions, like urgent bills or time-sensitive business payments. RTP systems enhance efficiency, reduce delays, and provide greater convenience for consumers and businesses.

Reason Code

A reason code is a numerical or alphanumeric code assigned to a transaction or dispute to provide additional information about the nature of the transaction or the reason for the dispute. Reason codes are used by the acquiring bank, payment processor, credit card network, or card issuer to provide a standardized and structured way of communicating the reasons for disputes. In credit card processing, reason codes are used to classify and communicate the reasons for declined transactions, chargebacks, or disputes. The codes vary depending on the card issuer, payment network, or acquiring bank.

Refund

A refund is the return of money to a customer or buyer, generally because of dissatisfaction with a product or service, a mistake in the transaction, or an overpayment. Refunds can occur in various scenarios, such as when a product is returned, a service is canceled, or a purchase was made in error. The refund process mostly involves the customer requesting the refund from the seller or service provider, who then processes it through the original payment method.

Refund Fraud

Refund fraud involves deceitfully obtaining a refund not rightfully earned. Popular refund fraud mechanisms include returning stolen or used items, using fake receipts, disputing legitimate charges with banks (chargeback fraud), and fabricating refund claims. Refund fraud causes substantial financial losses for businesses and complicates refund procedures.

Representment

Representment is the process for merchants to defend themselves against chargebacks and recover revenue lost due to the chargeback. Representment is challenging a chargeback by submitting a dispute resolution request to the issuing bank or the payment network. Sellers use Representment to contest a chargeback they believe invalid or unjustified.

The merchant provides evidence to support their case, such as receipts, invoices, shipping records, or customer service notes, and argues that the chargeback should be reversed. The outcome of a chargeback representment request is determined by the issuing bank or the payment network based on the evidence presented by both the cardholder and the merchant.

Returns

Returns refer to a customer returning goods or services to a merchant for a refund or exchange. Returns can occur for various reasons, such as dissatisfaction with the product, receipt of damaged goods, or receipt of the wrong item. Making a return typically involves the customer contacting the merchant in person, by phone, or through an online system to initiate the return.

The customer may be asked to provide proof of purchase and the reason for the return. Depending on the merchant's return policy, the customer may be required to pay return shipping costs, restocking fees, or other charges. The merchant then processes the return and issues a refund or exchange through either the original payment method or a different payment method. Returns are a standard part of retail and eCommerce transactions and play a vital role in managing customer satisfaction and loyalty.

Return Fraud

Return fraud occurs when a customer makes a false or misleading claim to a merchant to obtain a refund, credit, or exchange for goods or services that were not purchased or were not received in the condition claimed. Return fraud can take several forms, including receipt fraud, wardrobing, and false claims of damaged or defective merchandise. Return fraud can have a significant impact on merchants, as it results in lost sales and reduced profits.

Return fraud is a persistent challenge for retailers and e-commerce businesses, requiring careful management and continuous monitoring to minimize its impact. Estimates suggest that retailers deal with $166 million in merchandise returns for every $1 billion in sales, and they lose $10.40 to return fraud for every $100 of returned merchandise they accept. This results in an estimated annual loss of $24 billion.

Essential Chargeback Terms: S-T

Scheme Fees

Card scheme fees are charges related to processing card payments through networks like Visa and MasterCard. These fees include transaction fees (a percentage or fixed amount per transaction), assessment fees (for using the network’s services), interchange fees (paid by the merchant’s bank to the cardholder’s bank), authorization fees (for verifying transactions), and settlement fees (for transferring funds). These costs are part of the overall expense of accepting card payments.

Security

Security is the measure taken to protect sensitive information, such as credit card numbers, bank account numbers, and personal data, during financial transactions. Payment security protects the consumer and the merchant from fraud, theft, and other forms of financial crime. This requires the implementation of secure payment technologies, such as encryption, secure socket layer (SSL) certificates, and two-factor authentication, as well as adopting best practices for data management and storage.

Payment security also involves ensuring compliance with relevant regulations and standards, such as the Payment Card Industry Data Security Standard (PCI DSS), which sets standards for the protection of cardholder data.

Security Threat

A security threat is a potential danger or risk to an organization's information or systems' confidentiality, integrity, or availability. Security threats can come in many forms, including viruses, malware, hacking, phishing, social engineering, and physical theft or destruction. A security threat can result in the loss or theft of sensitive information, disruption of services, or damage to hardware or software. The consequences of a security threat can be significant, including financial losses, reputational damage, and loss of customer trust.

Settlement

Settlement is the process of transferring funds from the payer’s account to the payee’s account after a transaction. It involves clearing, where transaction details are verified and reconciled between banks or payment processors. The actual transfer of funds is executed, completing the transaction. The payment settlement process ensures that both parties receive the correct amounts and that the transaction is finalized.

Skimming

Skimming is a credit card fraud where thieves capture and steal credit card information without the cardholder’s knowledge. This often involves using a small, covert device called a skimmer that is illegally installed on ATMs, gas station pumps, or point-of-sale terminals. When a card is swiped, the skimmer records the card’s data, including the card number, expiration date, and sometimes the card’s magnetic stripe information. Criminals then use this stolen information to make unauthorized transactions or create counterfeit cards.

Tokenization

Tokenization is a security measure that replaces sensitive data, such as credit card numbers, with unique tokens. These tokens have no value or meaning outside the specific transaction, reducing the risk of data breaches. When a transaction occurs, the token is used to reference the original data stored securely in a vault.

This process helps protect sensitive information by ensuring that intercepted tokens cannot be used to access the actual data. Tokenization enhances data security by minimizing the exposure of sensitive information during storage and transmission, thereby reducing the risk of fraud and data breaches.

Transactions

Transactions are the exchange or transfer of goods, services, or financial assets between parties. In a transaction, one party provides something of value, such as money, in return for another item or service. This process involves several stages, including negotiation, agreement, and completion. Transactions are central to economic activity, impacting financial records, business operations, and market dynamics. They are essential for trade, accounting, and financial analysis, as they help track revenue, expenses, and overall economic performance.

Transaction Value

Transaction value refers to the total monetary worth of a transaction, encompassing all components involved in the exchange of goods or services. This includes the base price, any additional fees, discounts, and adjustments. It’s a key metric in business and economics, used to assess the financial impact of transactions, guide pricing strategies, and analyze market trends. In accounting, transaction value helps to evaluate the financial health of transactions, ensuring accurate revenue recognition, and compliance with financial reporting standards.

Transactions Volume

Transaction volume is the total number of transactions conducted over a specific period within a particular system or market. Transaction volume measures the frequency of transactions and can apply to various contexts, including financial markets, eCommerce platforms, and business operations. A higher transaction volume indicates increased activity and engagement, reflecting market health or business growth.

Analyzing transaction volume helps assess performance, forecast trends, and make strategic decisions. In finance, it can signal liquidity and market sentiment, while in eCommerce, it highlights sales activity and customer behavior. Accurate monitoring of transaction volume is crucial for effective management and planning.

True Fraud

True fraud is when a scammer makes a credit card transaction using stolen or unauthorized account information, and the cardholder did not participate in or approve the transaction. In such cases, the cardholder files a chargeback request with their bank or card issuer, asserting that the transaction was fraudulent. True fraud typically involves identity or card theft, where the unauthorized party purchases without the cardholder's knowledge.

Chargebacks for true fraud are usually resolved in favor of the cardholder, with the merchant bearing the financial loss. True fraud chargebacks occur less than friendly fraud chargebacks and can easily be addressed with pre-purchase fraud mitigation tools.

Essential Chargeback Terms: U-V

Unauthorized Transaction

An unauthorized transaction occurs when a financial transaction is made without the account holder's consent or knowledge. This can be in the form of using stolen credit or debit card information, where the cardholder did not approve the purchase or transfer. Such transactions are often the result of fraud, identity theft, or account breaches. When an unauthorized transaction is identified, the affected party can dispute it with their bank or card issuer, typically leading to a chargeback or reimbursement.

Valid Chargeback

A valid chargeback is a chargeback that follows all the precepts of the chargeback mechanisms. A chargeback is considered valid when it adheres to card network rules in legality, compliance, and acceptability, such as when the buyer didn’t know what the charge was for, a criminal made an unauthorized transaction, or the seller didn't deliver the promised service.

Visa Dispute Monitoring Program (VDMP)

The Visa Dispute Monitoring Program (VDMP) is a system established by Visa for tracking the frequency of disputes and chargebacks for each merchant. Under the VDMP, businesses face financial penalties and corrective actions if they consistently surpass the expected chargeback ratios. Businesses accepting Visa payments risk entry into the VDMP if their chargeback ratio exceeds set monthly thresholds, leading to fines per disputed transaction and significant administrative costs for compliance. V

DMP has three tiers, and the program level you find yourself in depends on whether your monthly chargebacks surpass a predetermined threshold. The early warning stage is a 0.65% chargeback ratio & 75 chargebacks (no fees); the standard stage is a 0.9% chargeback ratio & 100 chargebacks (Fines begin after four months and continue monthly until removal from the program), and the excessive is 1.8% chargeback ratio & 1,000 chargebacks (Fines intensify and continue until removal from the program). Businesses in long-term enforcement may face a hefty exit fee. The VDMP was previously known as the Visa Chargeback Monitoring Program (VCMP).

Visa Fraud Monitoring Program (VFMP)

Visa Fraud Monitoring Program (VFMP) is a merchant monitoring instrument that seeks to help sellers address fraud risk and protect the greater payments ecosystem. Entering into VFMP means your business has unusually high fraud levels. And Visa will compel you to craft a remediation system with your acquirer to resolve the issue. The first four months in VFMP is the grace period and does not attract penalties or extra costs. However, failure to remediate the chargeback issue within four months of being in VFMP attracts fines and penalties on every chargeback you get.

The metrics Visa uses to measure your status include the total volume in US dollars of Visa payments that are fraudulent (Fraud Volume) and the ratio of the volume of fraudulent Visa payments to all payments (Fraud Rate). The three stages of VFMP include early warning, 0.65% fraud to transaction volume (no fine assessed); standard, 0.9% fraud to transaction volume (no penalties levied); excessive, 1.8% fraud to transaction volume (Fines begin immediately and continue every month until removal from the program).

Essential Chargeback Terms: W-Z

Winnable Chargeback

A winnable chargeback is a payment dispute where a merchant has a strong chance of successfully contesting a customer's dispute over a credit card transaction. To achieve this, the merchant must provide clear evidence proving the transaction's legitimacy, follow the chargeback response procedures accurately, address the specific reason for the chargeback, and demonstrate compliance with their policies. Essentially, a winnable chargeback is when the merchant effectively counters the customer's claim by submitting proper documentation and adhering to required protocols.

Zero Liability Policy

A Zero Liability Policy protects cardholders from being held responsible for unauthorized transactions or losses. Commonly associated with credit and debit cards, card networks issue this policy so cardholders won’t face financial liability if their card is lost, stolen, or used fraudulently, provided they meet certain conditions. A cardholder must report the loss or fraud promptly before they can benefit from this protection. Zero liability policy has been criticized for inducing friendly fraud.

3D Secure

3D Secure is an online payment security protocol that adds an extra layer of authentication to prevent fraud. During checkout, you may be prompted to enter a password or verification code to confirm your identity. There are two versions: 3D Secure 1.0, which uses a static password, and 3D Secure 2.0, which offers more flexible options like biometric verification and one-time passcodes. This protocol helps reduce unauthorized transactions and chargebacks, enhancing security for both merchants and consumers. To use 3D Secure, both your card issuer and the merchant need to support it.

2FA Factor Authentication

Two-factor authentication (2FA) is a system that enhances security by requiring two distinct forms of identification to access an account. First, you enter your password (something you know). Then, you provide a second form of verification, such as a code sent to your phone, a security key, or biometric data (something you have or are). This extra step protects your account even if your password is compromised, making it much harder for unauthorized users to gain access. By combining multiple authentication methods, 2FA significantly improves account security.

Chargeflow Helps You Recover Chargebacks on Autopilot

Chargeflow's chargeback automation enhances dispute management and protects resources and customer relationships while being cost-effective. This method reduces the risk of losing genuine customers and delivers an impressive ROI increase of 800 to 1,500 percent compared to traditional methods.

Chargeflow offers a sophisticated chargeback automation solution, equipped with several key capabilities:

• Transaction Tracking: Utilize advanced order insights and AI-generated analyses to effectively track suspicious transactions.
• End-to-End Dispute Management: Manage the entire chargeback process efficiently. From the initial dispute to its resolution, everything is handled on autopilot, backed by insights from over 50 data points.
• Behavior Analysis: Gain visibility into user transaction behaviors. This feature helps in identifying patterns, plugging loopholes, and predicting future chargeback-prone transactions.
• Revenue Management: Streamline your revenue management process. By foreseeing potential chargebacks, you can take proactive measures to mitigate risks.
• Strategic Alignment: Align your business strategies with evolving fraud dynamics. This proactive approach ensures you stay ahead in the dynamic eCommerce landscape.

Our data shows that merchants using our fully automated chargebacks get an average of 75%-win rate instead of the industry average of 12%. Contact sales for more details!