What is a Chargeback in payment processing?

A chargeback in payment processing refers specifically to a dispute initiated by a cardholder regarding a transaction. This occurs when a cardholder contests a charge on their credit card statement, often due to reasons such as fraud, non-receipt of goods or services, or dissatisfaction with a transaction. When a chargeback is initiated, the transaction amount is reversed, and the funds are returned to the cardholder, effectively "charging back" the payment to the merchant's account.

Understanding this concept is crucial for both merchants and payment processors, as chargebacks can impact merchant accounts significantly, potentially leading to fees or penalties if they occur frequently. The process serves as consumer protection, allowing customers to dispute charges they believe are problematic, while also placing the responsibility on merchants to provide satisfactory products and services.

In contrast, a payment request initiated by the merchant does not describe a chargeback but rather a standard transaction process from the perspective of the merchant. A fee charged for processing transactions is related to costs associated with transaction handling, not disputes. A verification of transaction legitimacy pertains to fraud prevention measures and is not the same as a chargeback, which is a specific response to a dispute.