Merchant accounts and chargebacks

What is a merchant account?

Every transaction made with a credit card actually involve transfer of funds from the buyer to the merchant. A merchant account is a type of bank account that enables merchant to accept payment via credit and debit cards. This account is very important because it allows merchants to accept recurring credit card payment from their customers. Merchant account is recommend for growing businesses. It not only make financial transactions more efficient but it also convenient to customers.

Offshore Merchant Account Information

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What is a chargeback?

Also known as reversal, chargeback is a form of customer protection given to cardholder by the issuing bank. Chargeback allows the cardholder to file for a complaint in case he/she notice any fraudulent transaction on their statement. Once the cardholder file for a complaint, the issuing bank usually start their investigation immediately and if the transaction is proven to be fraudulent, the bank will reverse the transaction to the cardholder.

If the merchant is not able to prove to the issuing bank the legitimacy of the transaction, the bank will reverse the entire value of the transaction and charge the merchant an additional fee which can range from $10 to $100 depending on the bank sponsoring the merchant account. On the other hand, if the complaint file by the cardholder is not proven to be true, the transaction will not be reversed but there will be additional processing fees.

Merchant accounts and chargebacksĀ 

Payment processors and the partnering banks usually take a certain level or risk when providing merchant account for business. This is because every dollar transacted through their system could easily be reversed back leaving the bank responsible for the fund. For instance, if a business process a customer transaction through their merchant account but end up not delivering the product that the customer had ordered, the customer many issue chargeback so as to get a refund.


When opening a new merchant account, the bank usually access the risk associated with the new account. The bank will look at the possibility of chargebacks as well as the legitimacy of the business.


Reasons why merchant receive chargebacks

Upon opening up a merchant account, you need to know why merchant receive chargebacks. This will help you avoid them at all cost. Below are reasons for chargebacks.

1. Fraudulent transactions

This is the most common reason for chargebacks. It happens when credit card is used without the consent or authorization of the card holder.

2. Technical problem

If a technical problem occurs during the transaction process (between the merchant and the issuing bank). This problem can result the card holder to be charged twice for the same transaction.

3. Items not received

This is also one of the most common reason for chargebacks. If it happens that the merchant does not deliver items to the customer, the cardholder may file for a complaint and the merchant will pay accordingly.

4. Credit card not processed.

If the customer is not happy with the products and decides to return it to the merchant or if the cardholder receives items that he/she did not expect, the cardholder may request for transaction reversal. In this case the merchant will be held responsible.

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