Chargeback Management

Watch this video to understand 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.

Types of Chargeback

There are 3 types of chargebacks:

Merchant Error

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, the following payment gateways are qualified to handle the Chargeback management process:

Stripe
Adyen
GoCardless
Mollie
EBANX
Pay.com
Braintree

Chargeback workflow in Chargebee

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.

Refer to this document for detailed information on configuring Chargeback Management.

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.
Partial disputes associated with Consolidated invoicing.
Partial disputes related to a single payment (transaction) that is made to collect the amount for multiple invoices (using Pay now option).
Disputes associated with Gift Subscription.
When the chargeback is won.
If the currency of the transaction in Chargebee does not match the currency of the dispute that is raised.
If the dispute amount is greater than the transaction amount.