The question “ What is a chargeback?” keeps popping up in online card fraud cases. The history of chargebacks dates to the early 1970 in the United States even though the first case of identity theft is said to have occurred in 1899. During this period card holders were vulnerable to scammers who stole money from their debit cards. In addition, business owners were accused of inflating prices or adding extra charges to customers’ bills. Fraud threats made customers skeptical of using their cards when shopping.

What is a Chargeback?

A chargeback, also known as a “payment dispute,” is a reversal of credit or debit funds after a customer has raised a dispute about a purchase made through the card. Chargebacks are common in E-commerce, where customers use their cards to pay for goods online.

Types of Chargebacks

There are three types of chargebacks: criminal fraud, friendly fraud, and merchant error.

Merchant Error Chargeback

Merchant error chargeback occurs when a client disputes a purchase because of an error caused by the merchants, such as the delivery of a wrong product, delivery of damaged products, duplication or failure to deliver. 

Criminal Fraud

Criminal fraud chargeback happens when a client’s card is used to make a payment without his consent. An example of a criminal fraud chargeback is when a criminal hacks a customer’s cards detail and uses it to purchase items online then the legitimate cardholder disputes the purchase. Clients are advised to report card losses to their banks.

Friendly Fraud

Friendly fraud chargeback occurs when a dishonest customer disputes payment despite receiving goods or services ordered. The customer intends to abuse the chargeback process though it has been argued that the payment dispute can result from confusion or mistake. Friendly fraud is the most common chargeback, accounting for 60% to 80% of all chargebacks.

Chargeback vs. Refund: What’s the Difference?

What is the difference between a chargeback and a refund? These two terms have been used interchangeably to mean the same thing in the payments space. However, there is a slightly small difference between the two. Refund is when the merchant voluntarily sends the customer money after a dispute has been raised while cha