Summary of this article
Chargebacks refund disputed or fraudulent credit card payments
RBI rules ensure faster dispute resolution for consumers
Merchants must keep chargeback ratios under 1 per cent
One of the safeguards that credit cards provide to cardholders is the chargeback process. It allows the cardholder to approach the credit card issuer to reverse the payment for reasons, such as misuse of card, product not received, or where a wrong amount has been charged. The credit card issuer reverses the payment after verifying the facts. This ensures that the cardholder doesn't end up paying for a product or service that he never bought or used.
Rules And Monitoring
The Reserve Bank of India (RBI) requires every card issuer to have a clear grievance redressal system. The customer has to complain within a specified timeframe, and the issuer is required to settle and close the complaint within a short time. In case the grievance is not redressed within 30 days, it can be escalated through the Ombudsman scheme.
RBI also mandates norms for recurring transactions. Traders must provide a notice at least 24 hours ahead of debiting the card for subscription or recurring payments. This offers cardholders a chance to cancel the payment in advance.
Average Chargeback Rates
Chargeback rates are usually below 1 per cent of total card transactions. Card-not-present transactions have rates usually in the range 0.60-1 per cent, while card-present transactions are lower at 0.50 per cent. Retail and food service sectors have among the lowest chargeback rates, often below 0.50 per cent. Travel and online services see higher rates, around 1 per cent.
Merchants of high-risk types like online gambling or crypto-related transactions may have much higher rates, typically 2-4 per cent, that subject them to tighter network scrutiny. For most merchants, staying below 0.65 per cent chargebacks is secure, as above levels can lead to warnings and penalties.
Why Chargebacks Matter To Customers
Chargebacks act as a safeguard for card holders. In case your payment fails, or there is an unauthorised transaction in your account, you may file a dispute. Provisional credit is normally offered by banks while in enquiry. If the dispute turns out to be genuine, you are refunded the entire amount. This system makes online and card payments safer.
What Merchants Should Know
Merchants need to adhere to RBI requirements for authentication, notification, and secure storage of customers' information. Two-factor authentication, pre-settlement notification on recurring payments, and compliance with tokenisation help in reducing disputes. Having a record of transaction, delivery, and communication also helps in case a chargeback is lodged. Keeping the ratios minimal can help you avoid penalties.
Chargebacks are an integral component of the card payment system. They help safeguard customers from fraud and failed transactions, while also ensuring that merchants engage in reasonable business behaviour.
