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What is a chargeback? How they work and how to dispute one
Every sale you make is a win. You work hard to create a product worth buying, so when you see that a customer has disputed a charge, it’s natural to feel frustrated.
Chargebacks are an unfortunate part of life for businesses of all shapes and sizes. For owners and managers, it’s useful to understand why they happen, what to do when they occur, and how to prevent them.
In this guide, we’ll cover the main things you should know about chargebacks, including:
What is a chargeback?
A chargeback is when an end customer (someone purchasing a good or service) disputes a charge with their bank, credit card company, or other third party and the disputed amount is returned to them.
That sounds a lot like a refund, but it mostly differs in how the process works: instead of making a return or filing a complaint directly with the merchant, the customer makes their dispute through a third party. That’s often a financial institution like their bank or credit card company, but it can also include another company involved in the transaction, such as Uber Eats.
Chargebacks were introduced as a form of consumer protection to give customers a way to combat fraudulent charges on their accounts. On the merchant side, they may lead to fees on top of the charge that’s refunded, so they’re best avoided as much as possible. The good news is that the chargeback process generally includes an opportunity for the business to respond if the chargeback is incorrect, so not all disputes are a lost cause.
Types of chargebacks
Based on the information a customer provides, the bank, credit card company, or other third party will typically assign a reason code to the chargeback. Each major credit card issuer has a different system of chargeback reason codes. But chargebacks on the whole fall into 3 main categories:
Merchant error
Merchant error chargebacks are legitimate disputes often related to technical issues or mistakes made by your staff. Issues that trigger a merchant error chargeback can include:
- When a customer receives the wrong item(s) or there’s something wrong with the product
- When there’s a technical error in processing the order, such as a duplicate charge or an error in the amount charged
- If a delivery arrives late (when prompt delivery is promised)
- If a customer’s order never arrives or arrives with missing items
Chargeback fraud
Chargeback fraud, also called true fraud, occurs when orders are placed with stolen information. When a consumer sees unauthorized transactions on their financial statement and reports it, the resulting chargebacks fall into this category. This kind of credit card fraud is on the rise, so most merchants will have to deal with it at some point.
Friendly fraud
Friendly fraud is when a customer disputes an order they placed themselves for a fraudulent reason, such as dishonestly claiming they didn’t receive it or saying they simply changed their mind afterward. These cases can be trickier for merchants to dispute because they can look like merchant error on paper.
How chargebacks work
The particulars of the chargeback process vary according to the third party handling the dispute (we’ll refer to those third parties, often financial institutions, as “the company” for the rest of this section). While each company has its own policies, the main steps involved are fairly consistent. Generally, you can expect each chargeback to involve 4 phases:
Step 1: The customer reports an issue
Chargebacks are initiated when the customer reports an issue with a charge on their account. This can occur for a number of reasons, such as:
- They don’t recognize a charge that appears on their financial statement
- They were charged for an order they didn’t authorize
- They didn’t receive an item they ordered, or they only received part of an order
- They had a problem with the product that arrived and either couldn’t get the merchant to resolve the issue or didn’t try
- They’re falsely claiming that they didn’t place an order or that there was a problem with it, to dodge the cost (friendly fraud; see above)
If a customer starts the process of disputing an order with the merchant directly, that doesn’t count as part of the chargeback procedure. It’s when they take the step of reporting the charge to a third party that it triggers the chargeback process.
Step 2: An initial review is performed
Before the chargeback is authorized, the company will perform an initial review. Each company will have its own procedures for this part of the process, but this is the stage where it may assign a reason code and conduct an investigation to determine if the dispute appears to be valid.
Step 3: The merchant can dispute the chargeback
If the investigation finds that the chargeback is likely legitimate, the merchant will be alerted. If the customer’s complaints are reasonable, you’ll need to accept the chargeback and any fees that come with it. But if you’re confident the chargeback isn’t fair, you’ll have a chance to dispute it with the company. Gather any evidence you can find about the transaction in question, and submit it for review. On Uber Eats, this process is self-serve and streamlined.
Step 4: The company makes a judgment
With all the evidence from both sides provided, the company will make a decision about who’s responsible for the charge. If it finds that the merchant was not at fault (and the customer accepts the outcome), the cost of the chargeback will be returned to your account. If the customer doesn’t accept the finding, they can start the process again by providing new evidence to the company or moving the case into arbitration.
How chargebacks affect merchants
Chargebacks can carry multiple consequences for merchants, including:
A high financial cost
On top of the money from the sale itself that gets refunded, some companies charge additional fees to cover processing costs for resolving the issue. The way different companies handle their chargeback fees varies, but for those that do, the fees are often nonrefundable, even if you dispute the chargeback and win. It’s worth noting that on Uber Eats, merchants will never be charged additional fees on top of the chargeback amount.
Loss of customer trust
Legitimate chargebacks are a sign that something went wrong in the customer experience. Maybe a customer didn’t get the version of the product they expected—or didn’t receive it at all. Maybe they even tried to contact you and couldn’t get hold of anyone to help. If your goal is to build customer loyalty and trust, a valid chargeback is a sign that you missed the mark with this customer.
Loss of privileges and/or visibility
The occasional chargeback is expected, but if your business gains a reputation for frequent chargebacks, you could face long-term consequences. Your right to accept credit card payments may be suspended. And if you incur frequent chargebacks on a third-party delivery platform like Uber Eats, your visibility on the homescreen or in search results on the app could be affected.
How to prevent chargebacks
You may not be able to avoid fraudulent chargebacks, but you can take steps to reduce the issues that lead to legitimate chargebacks. Some best practices to consider include:
Keep ordering channels up to date. Make sure your online storefront reflects accurate item availability and pricing across channels where customers might place orders. This includes your website and any third-party apps like Uber Eats.
Build error prevention into your processes. Institute processes to help employees avoid basic errors, such as having them check all items in an order against a printed receipt and writing the order number on each package to avoid mix-ups with delivery people.
Communicate and practice transparency. Send an order confirmation right away so customers know the order has been received. Then keep the customer in the loop on the order’s status, especially if there are any unexpected delays on fulfilling it. Once the order is out the door, provide real-time tracking information so they know when to expect it. If you’re delivering with a third party like Uber Eats, this tracking information is provided to customers automatically.
Commit to providing great customer service. Make sure customers can easily contact you in case of problems. If they can’t get in touch about an issue, a chargeback is much more likely. Do your best to respond to and resolve all issues quickly.
Review your analytics. Your data can help you identify common issues affecting customer satisfaction. Spend time understanding how often customers report inaccurate orders, the most common types of order issues that come up, and any trends in when and how the errors occur. Understanding why problems happen enables you to institute changes to prevent them moving forward. If you’re working with Uber Eats, you have access to a range of data visualization tools that can help you identify and address order error issues.
4 tips for disputing a chargeback successfully
Disputing a chargeback has a cost in time and energy, and there’s no guarantee you’ll win. But if you’re confident that you have a strong case, disputing the charge may be worth it. To increase your odds of success, follow a few main steps:
Keep detailed records. The first step to disputing a chargeback happens long before the customer files a complaint. Establish strong processes for documenting every order from the moment it’s purchased to its delivery, and through to any customer service inquiries involved. For any customer service interactions that aren’t in writing (such as in-person conversations and phone calls), train employees to take (and save) notes.
Learn the company’s chargeback policies. Each company has its own procedures for letting merchants dispute a chargeback. Learn and follow the process the company has dictated. You don’t want to lose the dispute on a technicality.
Move fast. Most chargeback processes have a short timeline. Merchants often have 30 days or less to respond, so file your dispute quickly.
Provide evidence. If it’s a case of your word against the customer’s, your dispute is unlikely to look very convincing. Collect all the relevant documentation to support your case, and submit it along with your dispute.
How to dispute a chargeback on Uber Eats
At Uber Eats, we’re committed to building a marketplace that allows your business to thrive. That’s why we’ve developed policies and procedures around chargebacks to ensure that these instances are evaluated fairly and resolved quickly for all parties involved.
For starters, you can rest assured that you’ll never be responsible for a chargeback when a customer is flagged for potential fraud. Across all support channels, we apply strict fraud filters, some of which include:
- Metric monitoring: We track customer dispute history and block customers who abuse our policy from submitting these types of claims.
- Photo evidence: In many cases, we require customers to submit evidence of an order error before we make a refund decision.
- Case escalation: We advance cases to a trained team when chargebacks are:
- Not filed in a reasonable time frame
- For high-value orders
- For orders with alcohol items
- For first-time customers
After we apply these filters, we’ll evaluate the nature of the chargeback request. Your business will only be responsible for issues that are tied to order accuracy and within your control. These issues might include:
- Missing items: Customers did not receive an item that was ordered.
- Incorrect items: Customers received an item that was not as ordered.
- Undelivered orders: Customers never received their order.*
- Late deliveries: Customers received their order approximately 70 minutes or more past the estimated delivery time.**
Even with all these measures in place, sometimes you’ll encounter a chargeback you don’t agree with—and we believe that you need to be in the driver’s seat to make it right. If you feel confident a chargeback was made in error, you can easily dispute it in your Uber Eats Manager (UEM) dashboard using our self-serve dispute feature. Here’s how this works:
- Step 1: Log into your UEM account.
- Step 2: Navigate to the Orders tab.
- Step 3: Select the order you wish to dispute within 30 days of the order date.
- Step 4: Fill out the form and submit your request.
- Step 5: Track progress in your UEM dashboard and receive email updates about the status of your dispute request.
Managing chargebacks can be time-consuming and costly. With tools built right into UEM, we want to make the process as fair and efficient as possible. If you’re already working with Uber Eats, log in to UEM and navigate to the Orders tab to explore the feature in more detail. If you’re new to delivery, learn more about the services available to grow your business and get started today.
*For undelivered orders, merchants will be responsible for the chargeback (i) when using your own delivery staff, (ii) because your store was closed (but marked open on the app) and the customer’s order was not prepared, and/or (iii) because your store was closed (despite your initially accepting the order) when a delivery person arrived within a 30-minute window of your Uber Eats menu closing.
**For late deliveries, merchants will be responsible for the chargeback when using your own delivery staff.
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