Payment Pulse – Ep. 38

Learn what chargebacks are, why they happen, and how businesses can respond, document, and prevent disputes with the right support.

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Episode Transcript

Noelle:  Welcome back to the Payment Pulse. Today we’re talking about a topic that no business owner enjoys, but one that’s important to understand, and that’s chargebacks. To help us break it all down, I’m joined again by Joe. Joe, welcome back!

Joe: Thanks, Noelle. Happy to be here. Chargebacks are one of those things that most businesses will encounter at some point. The good news is that while they can be frustrating, they’re usually much less intimidating when you understand how they work and know what steps to take.

Noelle: So yeah, let’s start with the basics then. What exactly is a chargeback?

Joe: Yeah. A chargeback happens when a customer disputes a transaction with their bank or a credit card issuer instead of working directly with the business to resolve the issue. When that happens, the bank temporarily reverses the charge while they investigate the claim, and the funds are typically removed from the merchant’s account during that process until a decision is made. So, chargebacks were originally designed as a consumer protection tool to help cardholders recover money from unauthorized transactions or where they didn’t receive what they paid for.

Noelle: So chargebacks aren’t always a bad thing. They serve a purpose.

Joe: Exactly. The challenge is that not every chargeback involves actual fraud. In many cases, the customer made a legitimate purchase, but something happened afterward that led them to dispute the charge. That’s why it’s important for business owners to understand the different reasons chargebacks occur.

Noelle: So, what are some of the most common reasons that a business would receive a chargeback?

Joe: Yeah, there are several. One of them, or one of the most common ones, I should say, is a customer claiming they didn’t authorize the transaction. We also see disputes related to products or services. For example, a customer may say they didn’t receive an item, that it arrived damaged, or that the service wasn’t delivered as expected.

Another common reason is customer confusion. Sometimes a cardholder sees a business name on their statement that they don’t recognize and immediately assumes the charge is fraudulent. And occasionally, customers may attempt to get a refund through their bank before contacting the business directly.

Situations like that often fall into a category called “friendly fraud”, which has become one of the biggest drivers of chargebacks today.

Noelle: Yeah, so how is that different than from actual fraud?

Joe: Great question there. Friendly fraud occurs when a customer disputes a legitimate transaction. Sometimes it’s intentional, but often it’s not. Maybe they forgot they made the purchase. Maybe a spouse or child used the card. Maybe they don’t recognize the charge on their statement. Whatever the reason, the customer files a dispute even though the transaction itself was valid.

True fraud is different. That’s when someone uses a card without the cardholder’s permission. The card information may have been stolen or compromised, and neither the customer nor the merchant intended for that transaction to happen. Understanding the difference matters because friendly fraud has become one of the biggest drivers of chargebacks today.

Noelle: That’s interesting because I think that there are many business owners assume that all chargebacks are a result of stolen card information. And it sounds like that’s not really the case anymore, you know?

Joe: Yeah, exactly. And often that’s not the case, right? Many chargebacks stem from misunderstandings, communication issues, or customer confusion rather than criminal activity. That’s one reason why customer communication and documentation are so important.

Noelle: So let’s talk about what actually happens when a chargeback is filed. How does that dispute process work?

Joe: The process starts when a customer contacts their bank and disputes a charge. The issuing bank reviews the claim and initiates a chargeback. The merchant is then notified and given an opportunity to respond.

At that point, the merchant can either accept the chargeback or provide evidence showing the transaction was legitimate. The evidence could include receipts, signed agreements, invoices, proof of delivery, customer communications, or other records related to the transaction.

And then the bank reviews that information from both sides and ultimately determines whether the chargeback stands or whether the funds should be returned to the merchant.

Noelle: So documentation, then, becomes critical.

Joe: Absolutely. Yeah, the business, the businesses that are most successful at managing chargebacks tend to be the ones that maintain good records from the beginning.

If you’re shipping products, keep tracking and delivery information. If you’re providing services, keep signed agreements and service records. If you’re communicating with customers about purchases, save those communications.

The stronger your documentation, the stronger your position if a dispute arises.

Noelle: So let’s say a business owner receives a chargeback for the first time. What’s the first thing they should do?

Joe: The first thing is don’t panic and don’t ignore it. Chargebacks come with deadlines, and responding quickly is important. When a notification comes in, start by reviewing the reason for the dispute. And understanding why the chargeback was filed will help determine what information you’ll need to gather, then begin collecting any documentation related to that transaction.

Noelle: What types of documentations are typically the most helpful?

Joe: Well, it does depend on the situation, but common examples would be receipts, invoices, proof of delivery, tracking information, assigned agreements, refund records, and customer communications. The goal is to create a clear story of what happened from the purchase itself through fulfillment and any follow-up interactions with the customer.

Noelle: Should a business automatically dispute every chargeback that they receive?

Joe: Well, not necessarily. A part of the process is determining whether the customer has a valid claim. If the business made a mistake or the customer has a legitimate reason for the dispute, accepting the chargeback may be the right decision. But if the transaction was legitimate and you have documentation to support that, it may make sense to challenge the dispute and provide evidence.

The key is reviewing each situation individually rather than treating every chargeback the same.

Noelle: Great. So should business owners be handling all of this chargeback stuff on their own?

Joe: Not at all. This is one area where having the right payment provider can make a real difference. A good payment processor shouldn’t just notify you that a chargeback happened, and leave you to figure it out yourself. They should help you understand the reason for the dispute, explain what documentation may be needed, and guide through the response process.

For many business owners, chargebacks aren’t something they deal with every day. That’s why having access to knowledgeable support can be incredibly valuable.

Noelle: So your payments partner should provide more value than just processing payments.

Joe: Exactly. The best payment partners act as an extension of your business. They provide tools, resources, and support to help you navigate challenges when they arise. For example, Xplor Pay, in our merchant portal, you get access to work your chargebacks on the disputes tab within the portal. We, from there, can provide our merchants updates on their cases and a list of definitions of the terminology that is gonna be used there, which can be very helpful.

Noelle: Awesome. So now let’s shift to prevention. What are some of the best practices businesses can follow to reduce the likelihood of chargebacks?

Joe: A few simple habits can make a big difference. First, be transparent. sure customers clearly understand what they’re purchasing, how much they’re being charged, and what your policies are.

Second, make it easy for customers to contact you. Many chargebacks happen because a customer can’t quickly get an answer to a question or concern.

Third, process refunds promptly and communicate throughout the process so customers know what to expect.

And finally, maintain organized records. Good documentation doesn’t just help when responding to chargebacks. It can also help identify patterns and prevent future disputes.

Noelle: So it sounds like these best practices are really just about creating a better customer experience overall.

Joe: Yeah, exactly. Chargeback prevention often starts long before a dispute is ever filed. Clear communication, strong customer service, and good record keeping can prevent many issues from escalating in the first place.

Noelle: Great. So before we wrap it up, Joe, what’s the biggest takeaway you’d like business owners to remember?

Joe: I’d say this: Don’t panic when you hear the word chargeback. Chargebacks happen to businesses of all sizes. The key is understanding why they occur, responding quickly when they happen, maintaining good documentation, and focusing on prevention wherever possible. When merchants understand the process and have a plan in place, chargebacks become much more manageable and much less intimidating.

Noelle: Great advice, Joe. Thank you again for joining us!

Joe: My pleasure. Thanks for having me.

Noelle: Thank you for listening to The Payment Pulse. If you enjoyed this episode today, be sure to join us next time as we continue to explore the trends, tools, and strategies that help businesses get more from their payments. Till next time, thanks for listening.

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