Bank Chargebacks

April 23, 2021 | 9 min read

What is a Bank Chargeback? What Makes it Different From Other Disputes?

Bank chargebacks are disputes initiated by a cardholder’s issuing bank. The motivations and processes involved are different from a conventional customer dispute. For the merchant, however, the end result is the same: lost revenue, added fees, and a higher chargeback rate.

With a standard chargeback, a transaction reversal occurs because some part of the process went wrong or was incorrect. The “something” that went wrong could be anything from a technical glitch to a merchant error or a fraud claim. So, what’s different about a bank chargeback? What causes these disputes, and what’s the difference between a bank chargeback and a regular chargeback?

Before we get into these details, it’s helpful to take a quick look at the standard chargeback process to understand where the two processes differ.

What Is a Chargeback?

Bank Chargeback

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A bank chargeback type of dispute filed against the merchant by the issuing bank. The bank files the chargeback based on an error or anomaly in the transaction.

Essentially, a chargeback is a forced refund attached to a payment card transaction that a customer claims is invalid. That sounds simple enough, but the process itself can get extremely complicated.

Chargebacks—or more specifically, customer disputes—are a federally mandated right for payment card users. A standard chargeback starts when a cardholder claims a transaction is not valid. The bank then disputes the transaction on their customer’s behalf, and the cost of the sale is taken from the merchant and returned to the cardholder.

If this happens, it means you lose the cost of the merchandise, as well as the merchandise itself. On top of that, you’ll lose any shipping and processing costs, as well as fines and administrative fees. All these losses can add up in a hurry.

Chargebacks Cost You Money.

Whether initiated by the bank or by a customer, we can help you stop chargebacks before they happen. Click to learn more.


The chargeback system was designed to be used as a “last resort” to protect consumers from criminals or dishonest merchants. Unfortunately, the system is increasingly used as a loophole to commit fraud, rather than prevent it. The practice of filing invalid chargeback requests—known as friendly fraud—may be responsible for more than 60% of all chargebacks filed this year.

You can prevent most chargebacks resulting from criminal fraud or merchant error, but you can’t really prevent those resulting from friendly fraud. If you can prove the chargeback was illegitimate, though, you may be able to reverse it through representment.

How Is a Bank Chargeback Different?

As the name implies, a bank chargeback is initiated by the issuer, not the customer.

A bank chargeback happens when the issuer detects some anomaly in the transaction process. And, true to their name, bank chargebacks can often be handled at the banking level. The issuing bank and the acquiring bank often work to resolve these disputes at the banking level. Both the buyer and the seller may be completely unaware that a chargeback is being processed.

[Tweet "The issuing bank and the acquiring bank may work to resolve some disputes at the banking level. Both the buyer and the seller may be completely unaware that a chargeback is being processed. The result, though, is the same as any chargeback: the merchant may be liable to lose revenue."]

When all is said and done, however, we’re still talking about a chargeback. That means that, at some point, the claim will be settled. In most cases, the funds will be transferred from your account to the cardholder, just the same as with any other dispute.

Even if you knew nothing of the chargeback until after the fact, you’ll still be hit with fees. And, unlike a standard chargeback, you’ll rarely have an opportunity to challenge the bank’s decision.

What Counts as a Transaction Anomaly?

Bank chargebacks are typically triggered by an error in the original transaction. Something in the transaction is “off” in some way. It may or may not actually be causing an issue, but it at least has the potential to create trouble.

The most common causes of bank chargebacks include:

Expired card/account

You processed a transaction on an invalid account.

Declined authorization

Authorization was denied, but you went ahead with the transaction by placing an authorization hold or presenting the transaction.

No authorization

You neglected to obtain the required authorization.

Late presentment

You failed to present the transaction before the stated deadline and the cardholder’s account has since been closed.

Incorrect currency codes

Incorrect currency codes

You failed to provide adequate currency information or properly process a currency conversion.

Transaction amount differs

The amount the cardholder was charged doesn’t match what’s on the receipt.

Multiple authorization requests

You managed to process a declined transaction through other means.

Incorrect or nonmatching account number

The account number in the authorization does not match the account number on file with the issuer.

Duplicate processing

The same transaction was processed two or more times on the same account.

Merchant Fraud

Merchant Fraud

The bank suspects you of fraudulent transactions.

The anomaly might seem benign to you, but the bank may file a chargeback anyway. From their perspective, they’re just being proactive; they see a bank chargeback as a way to protect themselves from future trouble.

For example, say a transaction uses an account number that doesn't match the number on file with the issuer. There might be a legitimate reason for this, but the issuer doesn’t know. Rather than take a chance, the bank files a chargeback “just in case.”

[Tweet "Issuers view bank chargebacks as a proactive tool to protect themselves against potential problems."]

Some chargeback reason codes are used exclusively with bank chargebacks. “Late Presentment Chargeback” is a good example; this reason code (Visa 12.1 or Mastercard reason code 4834) will only ever be used by banks when a transaction is processed late.

Cardholders, on the other hand, aren’t likely to know that a processing deadline even exists. The bank is solely responsible for keeping an eye on time limits.

So What Can Merchants Do?

As we mentioned, bank chargebacks are also much harder to fight than customer disputes. If you have evidence that a customer dispute was invalid, you can challenge the chargeback through representment. Winning a reversal through the representment process may allow you to recover some of the lost revenue (all fees would still apply, of course).

Outside of a technical fault, however, it’s rare that the issuer will reverse a bank chargeback. Since the issuer is the one identifying the mistake, you would need an iron-clad case to overturn their decision. In many situations, challenging the chargeback isn’t even an option.

The bottom line is that you’re better off trying to avoid bank chargebacks at all costs. Luckily, most bank chargebacks are the result of simple missteps on the merchant’s part, which means they’re nearly 100% preventable.

How to Prevent Bank Chargebacks

Seemingly minor errors can lead to significant revenue loss. One of the best ways to reduce risk is to take a fresh look at your policies and procedures. Make sure you’re following proven best practices for accepting payment cards in card-not-present situations:

  • Strictly adhere to proper network processes and regulations.
  • Always request authorization, and never attempt to bypass a declined card.
  • Pack and ship purchases quickly.
  • Grant credits and cancellations as soon as the customer asks.
  • Deposit sales/credit receipts within one to five days of the transaction date.
  • Ship merchandise before depositing the transaction.

Self-examination is one of the most challenging—yet crucial—actions you must take to eliminate internal chargeback triggers. An exhaustive, unflinching evaluation of your business is the only way to identify policies and practices that create problems.

Even with the best intentions, however, it’s hard to take a completely unbiased look at your own operation. If you find you need help from an external source, Chargebacks911® offers the solution.

Our proprietary 106-point Merchant Compliance Review was specifically designed to identify hidden chargeback triggers that are costing you money. Don’t fall victim to another bank chargeback. Contact Chargebacks911 and learn how a professional assessment can save you time and revenue today.


What is a bank chargeback?

A bank chargeback type of dispute filed against the merchant by the issuing bank. The bank files the chargeback based on an error or anomaly in the transaction.

What kinds of errors cause bank chargebacks?

Bank chargebacks are caused by a variety of factors, including discrepancies in account numbers or amounts, lack of authorization, accepting expired credit cards, merchant fraud, and similar things.

How are bank chargebacks different from customer disputes?

With customer disputes, the cardholder contacts the bank, which will file a chargeback on the cardholder’s behalf. Bank chargebacks stem from internal errors; the cardholder is typically not even aware the chargeback was filed.

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