Watch this video to understad how chargeback is handled in Chargebee.
What is a Chargeback?
A Chargeback is a dispute raised for a payment made by the customer. Although it appears similar to a refund, there is one major difference between the two. In the case of a refund, the merchant reverses the funds to the customer. Whereas in a Chargeback, the customer disputes the transaction with the bank directly. The money is deducted from the merchant's business account and returned to the customer. The merchant or the business owner is notified only after the amount is deducted.
When the customer's card is mistakenly charged for a subscription or product that was already canceled.
Here are a few examples of merchant errors:
The cancel option is not easily discoverable on the website or the cancellation process is tedious.
The buyer is not happy with the product or service.
To avoid a cumbersome return process.
Recurring payments go through even after cancelling the subscription.
Has exceeded the return time of the product.
Criminal Fraud
Unauthorized transactions on the card made by fraudsters or hackers.
Here are a few examples of criminal fraud:
The customer does not recognize the transaction.
Unauthorized charge on the card.
Friendly Fraud
Friendly fraud is the process of filing a chargeback directly without contacting the merchant for a refund. Here, the cardholders often dispute a legitimate charge on their credit card to receive a refund from the bank.
Here are a few examples of friendly fraud:
Does not want to pay for the product.
To avoid a restocking or handling fee.
Chargeback Process
When a customer files a Chargeback dispute with the issuing bank, the issuing bank contacts the acquiring bank and informs them of the Chargeback. The customer can raise a chargeback anytime between 45 to 180 days (up to 13 months for SEPA) depending on the payment method and the bank's terms. The acquiring bank debits the amount from the merchant's account.
Once the funds are debited from the merchant's account, an alert is sent to the merchant. A reason code is mentioned in the alert, this helps the merchant identify the cause of the chargeback. Here, the merchant has 2 options: to dispute or accept the chargeback. If the merchant decides that the claim is legitimate or if they choose to accept the chargeback, the chargeback is considered lost.
In case the merchant has provided the required service or product and wishes to dispute the chargeback, then they will have to provide evidence to validate or disapprove the dispute. The merchant is generally given 7 - 10 days to submit the evidence. The dispute then goes through a resolution process which can take approximately anytime between 30 - 90 days. If the evidence is valid, then the merchant wins the chargeback, if not, they lose the chargeback.
Payment Gateways supported for Chargeback Management
Chargebee supports Chargeback management for Card and SEPA based payments only. Currently, 3 payment gateways are qualified to handle the Chargeback management process:
Stripe
Adyen
GoCardless
Prerequisites
Chargebee requires webhook to communicate with the gateways. Therefore it is mandatory to configure webhooks for your gateway.
To test chargeback management with Stripe, connect your Test site with Stripe's sandbox account. Chargeback scenarios cannot be simulated by adding cards to Chargebee's test gateway.
Chargebee supports chargeback management at 2 stages currently - Chargeback initiation and Chargeback lost.
Once the money is debited from the merchant's account, the payment gateway notifies Chargebee via a webhook. At this stage, the merchant can choose to automatically record the refund (that was debited because of the chargeback) and decide how to handle invoices and subscriptions of the customer until the dispute resolution is obtained.
The merchant can configure settings in Chargebee to handle chargebacks that are lost. This is explained in detail in the next section.
In case the chargeback is won, the merchant has to intervene and manually change the impacts across the subscription and invoice module.
The Chargeback Management page allows you to configure settings on how to handle subscriptions, invoices, and credit notes during the case of a chargeback.
Choose how to handle invoices
The instructions that you set here has impacts on the invoice module.
Note
Adyen and Gocardless do not notify Chargebee when a chargeback is lost. Therefore exercise caution while choosing the settings. It is recommended that you choose the final action that you would like Chargebee to perform in the ‘When a chargeback is initiated' setting itself.
Stripe sends individual notifications when a chargeback is initiated as well as lost.
When a chargeback is initiated: Here you need to specify what action Chargebee has to perform when the chargeback is initiated.
Available options are:
Create credit note and record refund (Recommended): Once the payment gateway notifies Chargebee that the chargeback is initiated, a refundable credit note is created with ‘Refunded' status. The refund is automatically recorded as the funds are already debited from the merchant's account.
This option is recommended for merchants who do not wish to dispute the chargeback. Selecting this option automates the entire flow and makes work easier from an accounting standpoint.
Make invoice as Not Paid and record refund: Here the status of the Invoice is changed from ‘Paid' to ‘Not Paid' and a refund is recorded. This option is suitable for merchants who wish to review every chargeback.
Do nothing: Does not apply any changes on the Invoice.
When the chargeback is lost: Here you can configure what needs to be done when a chargeback is lost.
If you have chosen to Create credit note and record refund (Recommended) or Make invoice as Not Paid and record refund in the previous setting, then you do not have to do anything. In case you have selected do nothing, then you can either choose to Create a credit note and record refund or Make invoice as Not Paid and record refund.
Choose how you handle the affected subscriptions
The instructions that you set here has impacts on the subscription module.
Note
Adyen and Gocardless do not notify Chargebee when a chargeback is lost. Therefore exercise caution while choosing the settings. It is recommended that you choose the final action that you would like Chargebee to perform in the ‘When a chargeback is initiated' setting itself.
Stripe sends individual notifications when a chargeback is initiated as well as lost.
When a chargeback is initiated: Here you choose how to handle the subscription of the transaction for which the chargeback is initiated.
Available options are:
Cancel Immediately: Cancels the subscription as soon as the webhook is received.
Cancel at end of term: Cancels the subscription at the end of the billing term.
Pause forever immediately: Pauses the subscription forever immediately. In case you wish to resume the subscription, you have to do it manually.
Pause forever at the end of term: Waits until the end of the term and then pauses the subscription. In case you wish to resume the subscription, you have to do it manually.
Do nothing: Does not do anything.
When a chargeback is lost: Here you choose how to handle the subscription of the transaction when the chargeback is lost. The configuration that you select here depends on what you have selected in the previous setting.
If you have selected Cancel immediately previously, then you can choose to Do nothing when the chargeback is lost.
If you have selected Cancel at the end of the term previously, then you can choose to Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Pause forever immediately previously, then you can choose to Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Pause forever at the end of the term previously, then you can choose to Pause forever immediately, Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Do nothing previously, then you can choose to Pauseforever at the end of the term, Pause forever immediately, Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
Configure what happens to other subscriptions associated with the customer
You can choose what happens to the other subscriptions that are associated with the customer who has initiated a Chargeback. In case you do not want to do anything to the other subscriptions of the customer, you can leave this setting disabled.
Note
Adyen and Gocardless do not notify Chargebee when a chargeback is lost. Therefore exercise caution while choosing the settings. It is recommended that you choose the final action that you would like Chargebee to perform in the ‘When a chargeback is initiated' setting itself.
Stripe sends individual notifications when a chargeback is initiated as well as lost.
When a chargeback is initiated: Here you can choose how to handle the other subscriptions associated with the customer, once they initiate a chargeback for a transaction.
Available options are:
Cancel Immediately: Cancels the subscription as soon as the webhook is received.
Cancel at end of term: Cancels the subscription at the end of the billing term.
Pause forever immediately: Pauses the subscription forever immediately. In case you wish to resume the subscription, you have to do it manually.
Pause forever at the end of term: Waits until the end of the term and then pauses the subscription. In case you wish to resume the subscription, you have to do it manually.
Do nothing: Does not do anything.
When a chargeback is lost: Here you can choose how to handle the other subscriptions associated with the customer, when the chargeback is lost. The configuration that you select here depends on what you have selected in the previous setting.
If you have selected Cancel immediately previously, then you can choose to Do nothing when the chargeback is lost.
If you have selected Cancel at the end of the term previously, then you can choose to Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Pause forever immediately previously, then you can choose to Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Pause forever at the end of the term previously, then you can choose to Pause forever immediately, Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
If you have selected Do nothing previously, then you can choose to Pause forever at the end of the term, Pause forever immediately, Cancel at the end of the term,Cancel immediately orDo nothing when the chargeback is lost.
Do not collect payments for unpaid invoices/unbilled charges from all subscriptions
If you enable this setting, Chargebee will stop collecting payments for unpaid invoices and unbilled charges for all subscriptions associated with a customer who has raised Chargeback. This overrides the site settings selected for subscription cancellation and pause subscription.
Limitations
Chargeback management is not possible for the below mentioned cases as it requires manual intervention from the merchant.
When an invoice has a credit note associated with it.
