One of the most common payment method used by online merchants are the credit cards and is likely to continue to be a popular method of payment in electronic commerce, even as other options such as electronic wallets and digital cash become available. Credit cards are popular among consumers for various reasons, including interest-free credit and special benefits such as travel rewards and insurance coverage, as well as the convenience. A further advantage of using credit cards is limited liability in respect of theft or unauthorized usage.

Credit card charge backs are an important part of the framework needed to build consumer trust and confidence. This is an extremely powerful tool of consumer right, unique to financial intermediaries such as credit card issuers.

A chargeback occurs when a buyer asks their credit card company to remove a charge from their credit card statement. The credit card company will ask the buyer to provide an explanation about why they are disputing the charge. It refers to a returned transaction resulting from the lack of adherence to the conditions. A chargeback is a transaction that is challenged by a cardholder or issuing bank and is sent back through interchange for resolution. .

There are several reasons for the chargebacks. These  include :-

• Buyer’s credit card number is stolen and used deceitfully

• If the buyer makes a purchase, but believes that the seller failed to fulfill their side of the agreement; for example, did not ship the item, or the item was damaged when the buyer received it.

• Business fails to respond to a retrieval request.

This is the most common cause of chargebacks and is also the easiest to prevent.

• Customer was billed more than once for a single transaction.

To avoid duplicate processing, reconcile daily and ensure that the register  totals match the day's credit card receipts.

• Account numbers don't match.

If the card number displayed does not match the number embossed on the face of the card, ask for a different form of payment. Always print and double-check the account number on all phone and mail orders.
 

• A credit/refund was not processed properly.

Credits must be processed correctly and on time. Make the customers aware of the credit/refund policy at the time of purchase. Issue credits only to the same account numbers to which the sales were made.

• The card was used either before or after the valid dates

The transaction on a card must never be processed prior to, or after, the valid date. Instead, ask for a different form of payment.

• Failure to obtain proper authorization.

Be sure to authorize all transactions, and accurately record the approval code on the sales slip. If your request for authorization is declined, do not attempt to re-authorize transactions to the same account number, as subsequent approval may not protect you from a chargeback. 

Other reasons include returned merchandise, terminated services, disputes, errors, or fraud.

For avoiding chargeback losses, following things can be done:-

• Follow the Seller Protection Policy guidelines by shipping to the buyer's address listed on the Transaction Details page and by retaining proof of delivery that can be tracked online.

• Describe the item that you are selling in as much detail as possible and as accurately as possible by including pictures, measurements and other relevant specifics.

• Respond promptly to customer service requests.

• Keep a detailed information about the transaction and the customer also including emails etc.

Chargeback rules are designed to protect cardholders from fraud or processing errors. Credit card companies, whether or not required to do so by law, do engage in the practice of chargebacks.