Chargebacks were originally designed to protect consumers. Today, it’s ironic that merchants often need protection against this very system put in place to protect consumers. A chargeback is the return of funds to the consumer, by the bank, to settle a debt. In the event of a filed chargeback, the bank then forcibly removes funds from the merchant’s bank account to “repay” the consumer.
Chargebacks have long been a hindrance to e-commerce companies, sparking a rise in fraudulent behavior among consumers who attempt to defraud a company for their own monetary gain. While the payments sector grapples with bad actors, innocent consumers often get caught in the crossfire.