Risk & Compliance
Chargeback
Definition
Chargeback a transaction reversal initiated by the cardholder's bank after a dispute. Chargebacks return funds to the cardholder and impose fees on the merchant (typically $25-100). Common reasons include fraud, non-delivery, product issues, and billing disputes. Excessive chargebacks trigger monitoring programs and can result in account termination. Prevention is always cheaper than fighting chargebacks.
Related Terms
Chargeback Ratio
The percentage of transactions that result in chargebacks, calculated as chargebacks divided by transactions over a period. Card networks monitor this ratio closely. Visa's threshold for monitoring is 0.9%; Mastercard's is 1.0%. Exceeding thresholds triggers monitoring programs with fines and potential termination. High-risk MCCs often face stricter benchmarks. Ratio calculated monthly, with some lag for dispute timing.
Friendly Fraud
Chargebacks filed by legitimate customers who received goods or services but dispute the charge anyway. Also called first-party fraud or chargeback fraud. Common scenarios include buyer's remorse, family members making unauthorized purchases, or customers not recognizing billing descriptors. Represents 60-80% of chargebacks in some verticals. Prevention requires clear communication, recognizable descriptors, and good customer service.
Representment
The process of disputing a chargeback by providing evidence that the transaction was legitimate. Merchants submit documentation (proof of delivery, customer communication, signed agreements) to their acquirer. Win rates vary by reason code and evidence quality - typically 20-40%. Time limits are strict (usually 7-45 days depending on network). Worth pursuing for high-value transactions with good evidence.
VAMP (Visa Acquirer Monitoring Program)
Visa's program for monitoring merchants with excessive chargebacks or fraud. Triggered when chargeback ratio exceeds 0.9% or fraud ratio exceeds thresholds. Merchants in VAMP face monthly fees ($25K+), remediation requirements, and potential termination. Program has multiple tiers with escalating consequences. Similar to Mastercard's Excessive Chargeback Program (ECP). Getting into these programs is expensive; staying in is worse.
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