Tanisha Sabherwal
Tanisha Sabherwal
July 28, 2021

A chargeback is a dispute against a particular transaction raised by the cardholder (end-user), and reported to their card issuing bank. It is a provision by issuing banks and card networks to prevent consumers from fraudulent payments.

There can be a lot of reasons for chargebacks against a transaction. This list by Razorpay mentions some of these. Generally, chargebacks can be associated with unsatisfactory customer service/product or poor service delivery experience.

The flow

The chargeback raised by customer with her issuing bank reaches merchant through acquiring bank and then aggregator.

Chargebacks process flow

Chargebacks process flow

Post receiving the chargeback info, merchant will have 4–5 days to respond to the chargeback by either accepting or rejecting it. There are two conditions for the same.

Accept: If it is valid chargeback, acquiring banks recovers funds from the aggregator and aggregator in turn adjusts from the merchant's next settlement.

Reject: If merchant, rejects the chargeback, it needs to provide proofs stating the delivery of services/goods.

Conditions of chargebacks

  1. If the merchant does not revert back, chargeback is considered valid.
  2. Merchant should not accept chargeback for a transaction where refund has already been initiated.
  3. Issuing bank continuously back with the merchant if it is not satisfied with the clarification provided.

For Merchants

  • Merchants should be careful with the number of chargebacks raise, it signifies the health of the merchant's business. If a lot of chargebacks are raised against a particular merchant, the acquiring bank might revoke the Merchant ID(MID).
  • Merchant should always have service provisioning to provide proofs in such cases(preferably for thr past 13 months).

For Aggregators

  • If merchant doesn’t reply or do not provide satisfactory proof then acquiring bank recovers the chargeback amount from aggregator.
  • If there is no next settlement to process, the aggregator will have no way to recover and might lead to a loss. Collecting security deposit from merchants can be helpful in this case.

Resources: AuthNCapture, Razorpay