What is a Chargeback?

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Initiating transactions these days is pretty easy due to the digitalization of our banking system. Customers do not have to visit a physical bank to make a transaction. With just a few steps on your mobile phone, you can quickly initiate and complete almost all transactions.

This, however, has its downsides. If you are not careful, you could make a wrong transaction by paying the wrong account or overpaying. Some people have become victims of identity theft, overbilling from merchants, unauthorized transactions, etc. Note that this scenario is not only associated with online banking; it happens even with the conventional banking system and purchasing commodities.

So how do you get back your money from a wrong transaction or an unauthorized debit? Chargeback! You must have come across this word but unsure of what it means. Let’s walk you through how chargeback works in Canada.

Chargeback Meaning

A chargeback is a refund of an amount to a payment card after a customer successfully disputes a transaction(s) on their account statement or transactions report.

Regardless of where the transactions occur – debit cards or credit cards, you can always request a chargeback once you can dispute the transaction.

With chargeback, you do not have to contact the merchant or the receiver to initiate a refund. Your bank directly refunds you this money from the receiving account without their permission.

Yes, once you can prove that the money was wrongfully charged, the bank does not need the receiving account’s permission to pull out the money.

The cardholder’s issuing bank or the merchant; in most cases, the bank does the initiation. Once a chargeback is initiated, the merchant incurs a fee from the card issuer.

Reasons for a Chargeback

There are several reasons why a cardholder can request a chargeback. Some of them include:

  • When a cardholder is charged for a transaction, they never received
  • If a merchant duplicated a charge by mistake
  • A technical issue
  • Unauthorized transactions
  • When a customer returns an item bought
  • Compromised card information leading to identity theft

Disputing a transaction and requesting a chargeback can be challenging for a cardholder. This is because it requires time to investigate and dispute the charge.

To dispute a transaction, a customer service representative from your bank will request the receipt or proof of transaction to aid their investigation. In the case of a fraudulent charge, most financial institutions carry out due diligence and issue chargeback almost immediately in situations where card details have been compromised.

How a ChargeBack Works in Canada

Unlike a conventional refund that requires you to contact the receiving account holder for a refund, a chargeback involves a consumer asking the bank to take money from the merchant for a refund. The bank immediately grants this request once an investigation proves the consumer’s request is valid.

This can be disadvantageous for the receiving account, especially merchants, as after a chargeback, the customer is not obligated to return whatever was purchased. Also, as the merchant, you might be unaware of the chargeback until afterward.

The merchant’s issuing bank will charge a fee to the merchant for the chargeback transaction. These fees are explained in the merchant account agreement.

Generally, these fees are charged per transaction to cover the costs of the processing network. Note that there might be additional penalties for chargebacks depending on the issuing bank.

The process is similar to a regular transaction when a merchant initiates a chargeback. The money will be pulled out of the merchant’s account and deposited with the cardholder’s issuing bank.

However, if the issuing bank initiates the chargeback, it will be facilitated via communication on their processing network.

The merchant’s bank receives the signal and authorizes the transfer of the fund. This is done with the merchant’s confirmation.

However, in the case of theft, the issuing bank may approve the chargeback while also sending the claim to a collection department. If this is the case, the bank takes responsibility through reserve funds while investigating and resolving the claim.

Requesting a Chargeback

Once you are sure of an error in a transaction or unsure what the debit is for, you can request a chargeback with your credit card issuer. You can dispute a transaction(s) by phone, mail, online, or via mobile app, depending on how your issuing bank operates.

When submitting a chargeback, your issuing bank will require you to provide supporting documents such as copies of a receipt, invoice, contract, and any interactions with the merchant.

These details are to aid them in investigating the transaction. Generally, the dispute can take an average of 90 days or two billing cycles to complete depending on your issuer.

Conclusion

We always advise every card user to go through their receipts, transaction histories, and even bank statement. You never can tell what error or unauthorized payment that might have been initiated on your account. Be sure to contact your card issuer immediately if you are unsure of any transaction recorded on your statement.

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Avid researcher, freelance writer, and personal finance enthusiast passionate about financial education and literacy.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.