Chargeback Definitions


Step-By-Step Terminologies

Essential Terms
for Key Chargeback Steps

When it comes to disputes and chargebacks, certain terms can be confusing. Not understanding the jargon can cause undue stress. Here we share the most commonly used terms.

Part  1

Payment Terms

The financial institution that the merchant works with to accept and manage credit card transactions.

Address Verification Service (AVS)
Used to verify the address of the cardholder when the credit card is not swiped.

This is the process that authorizes the transaction. The transaction is either approved or denied.

Card Issuer
The financial institution that issues the credit card.

Card Present
A sale that occurs when both the cardholder and credit card are present. For example, an in-store purchase.

Card Not Present (CNP)
Transaction that occurs when the cardholder is not present. For example, an online purchase, phone purchase, or mail-in purchase.
A Quick Note from Us:
We haven’t included every known term in this chargebacks glossary—frankly, the list would simply be too long and too cumbersome to read in one stop.

Suggestion: Refer to the documentation provided by your acquiring bank or payment processor for case-specific terminology.
Part 2

Chargeback Basics

A chargeback occurs when a cardholder contacts their credit card company to request a reversal of a charge.

Chargeback Fraud
This occurs when a customer files a fraudulent request for a refund on a purchase.

Chargeback Ratio
The number of chargebacks compared to the overall transactions for a given month.

Chargeback Fee
The amount assessed by the acquirer for processing chargebacks.

Chargeback Reason Code
A numerical code which identifies the specific reason for a chargeback. MasterCard and Visa each have their own chargeback codes.

Chargeback Representment
A strictly-regulated process for fighting an invalid payment card chargeback.
From Our Team: Chargebacks vs. Refunds
Both refunds and chargebacks represent a net loss for merchants. Neither is a target outcome, but refunds are certainly preferable to the costs associated with chargebacks.

Friendly fraudsters may intentionally initiate this, contacting both their bank and the merchant at the same time to begin the chargeback and refund process.
Part 3

Encryption and Tech

Cardholder-Initiated Chargeback

A chargeback that results when a cardholder contacts the card issuer and refuses to accept a charge appearing on a monthly billing statement. A cardholder has 90 days to initiate a chargeback.

There are various levels of encryption that can be used to securely scramble and protect the cardholder’s identity, card number, address, and location.

Front-End Protection
This is your first line of defense, providing you with immediate notification that a chargeback has been initiated. This gives you the opportunity to act fast to resolve the case before it becomes a chargeback.

The Team of have built technology and experience from managing over $1 Billion
in e-commerce revenue.
Just like every other industry, internet fraud has been benefiting from improvements in technology.
Between the increase in resources and the volatility of the global economic climate, Internet fraud is often shown as a victimless crime in popular media.

We're making our years of experience available to you with
Part 4

Fraud Basics

Wrongful or criminal deception intended to result in financial or personal gain.

Friendly Fraud
When a cardholder disputes a transaction for reasons not intended to be deceitful, like forgetting they made the purchase, not recognizing the merchant's name on their statement, or (see Family Fraud)

Family Fraud
Family fraud is when a family member, often a child, makes a credit card purchase without the knowledge of the primary account holder. These issues can usually be resolved with the merchant, but any chargeback that results is considered friendly fraud.
Team Insight from
The cost of chargebacks is said to have been $117.47 billion by 2023. 86% of chargebacks are probable cases of 'friendly fraud.That amount does not include the additional losses, like the loss of goods or services, as well as the time spent by the merchants' team in processing them.
Part 5

Complex Fraud

Fraud Rate

Normally measured by chargebacks, fraud rate is a combination of gross chargebacks that the merchant receives, while net chargeback is everything the merchant receives minus every chargeback they dispute.  

Identity Theft
When fraudsters use personal data such as an individual’s name, driver’s license number, date of birth and address, to pose as that person to open new accounts and make purchases.

A form of social engineering and identity theft in which an e-mail user is tricked into revealing personal or confidential information which the scammer can use illicitly. Phishers may also install malicious software on computers, infect computers with viruses or even steal personal information off computers.
Pro Tip
Should the unfortunate happen, a sound paper trail will help rapid resolutions.

As a matter of course: It’s extremely important that you keep all necessary documentation organized. Transaction records, customer information…all this data needs to be stored in a way that lets you recall it quickly, and at will.

Deconstructing Chargebacks is key.
Part 6

Reason Code

This code represents the underlying reason for a chargeback. Each credit card company has its own distinct list of reason codes, descriptions, and numbers. It’s imperative that as a merchant you’re familiar with and understand the reason codes that are applied to each transaction that may be disputed.

Merchant Common Dispute Reasons
No Cardholder Authorization
Merchandise/Services Not Received.
Defective/Not as Described.
Canceled Recurring Payment.
Incorrect Amount
Point of Interaction Error.
Canceled Merchandise
Services.Duplicate Payment.
Credit Not Processed.
Pro Tip from
We’ll cut straight to the chase: chargeback reason codes should never be confusing, overwhelming, or frustrating. The key to removing the doubt and confusion around reason codes lies in having easy access to the right information.

Book a Call if confused. Clarity in Chargebacks is key to successfully reclaiming revenue
Key Takeaway

Online Shoplifting is real

What you need to know beyond terminoligies:
  • A chargeback or dispute claiming the goods were never received (although they were) is one form of online shoplifting.
  • There are secondary effects to this type of fraud, including credit card issuers refusing to work with the merchant due to excessive chargebacks.
  • Online shoplifting might seem harmless since the shoplifter never interacts with the victim and executes the fraud with a few keystrokes and mouse clicks. It is a crime nonetheless
The process whereby you decide to dispute or fight a chargeback. To effectively represent your case, you must have access to the information provided to you by a proven end-to-end solution.
Pro Tip from
When it comes to finding a solution, there is no smoking gun or universal set of best practices to keep pirates away. Companies will need to learn and re-learn their asset-protection strategies in bits and pieces to minimize losses. We can help.
Key Takeaway

The Human Factor

Chargebacks are meant to protect consumers from fraud. When faced with a billing dispute, most consumers do not attempt to resolve the problem with the merchant first; instead, they simply request the chargeback through their credit card issuer, often with a few simple clicks. Unfortunately chargeback fraud is a rising problem for merchants. Book a call.

Arbitration is the last resort
Only 2% of disputes make it to arbitration. Even if you think you have an airtight case, there’s still no guarantee of success. And, if the card network rules in the cardholder’s favor, they might assess a fee totaling hundreds, or even thousands of dollars.
Pro Tip
Only proceed to this stage if the dollar value of the goods or services justify the risk. Then, ask for advice from your acquirer as to the best way to proceed.
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