A chargeback is the reimbursement of funds to a consumer, initiated by the issuing bank. Chargebacks are a form of protection against fraud or other mishappenings either on the merchant’s side or due to third-party intervention. Simply put, chargebacks are transaction reversals, triggered by card-issuing banks to reimburse consumers in case of fraudulent or disputed transactions.
One common misconception is to equate chargebacks with refunds. The main difference between the two is WHO initiates the transaction reversal. In the case of chargebacks, the trigger is pulled by the issuing bank, at the card holder's request. In the case of refunds, the merchant directly settles the reimbursement of funds to the client. In calculating the risk associated with individual merchants, payment service providers take chargeback ratios into account, so keeping a good relationship with customers and settling all disputed transactions yourself, will bring you better processing rates and additional benefits from your payment service provider.