Credit Card Chargebacks vs. Debit Card Chargebacks

December 1, 2022
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by Deborah Beaulac

Operating an online business requires an understanding of the threats that can result in a loss of revenue. One of those is chargebacks. They appear in different forms, either through a credit card chargeback, debit card chargeback, or even a PayPal chargeback. However, in this article, we’ll be taking a look at the differences between credit card chargebacks and debit card chargebacks. 



How are credit card chargebacks and debit card chargebacks similar?

Chargebacks, whether through a debit card or a credit card, have the same end-result for businesses. Unless managed, merchants stand to lose  merchandise, revenue, and chargeback fees. 

Additionally, the manner in which chargebacks are treated by banks is similar, as chargebacks exist as a form of consumer protection. Suppose a customer doesn’t recognize a transaction, believes it to be fraudulent, or receives defective or damaged goods. In that case, they will contact their bank, who will then reverse the payment while investigations are completed. The chargeback process which follows is similar for both debit card chargebacks and credit card chargebacks.  

 

How are credit card chargebacks and debit card chargebacks different? 

As credit cards and debit cards operate differently, the manner in which transactions are dealt with by banks is also different. 

Credit card payments don’t require an upfront payment, as transactions are made using a line of credit. Therefore, when credit card chargebacks occur, a temporary account credit is applied for the cardholder while investigations are completed. If the cardholder is successful with the chargeback, they won’t be liable for payments, whereas if the merchant is successful, the cardholder will be required to make the payments. 

On the other hand, debit card chargebacks are made after the customer has paid the transaction using their actual account balance. This results in debit cardholders not being able to recoup the transaction value until after the dispute has been resolved, if they’re successful. If the merchant is successful, they simply keep the funds.

Another key difference is that while credit card chargebacks don’t require an upfront payment, the customer may be less receptive to working with the merchant to resolve issues. Due to the absence of payment, any credit reversal will only take 1-2 days for credit card chargebacks.

Whereas debit card users pay up front and are left without funds, which may result in their eagerness to resolve matters quickly. With the purchase already being made, the banks can take up to 10 days for the reversal of transactions in the case of debit card chargebacks.  

Regulatory differences between a credit card chargeback and a debit card chargeback

In the case of a credit card chargeback, The Consumer Credit Protection Act (Regulation Z) is the regulation that is enforced. This law stipulates a liability clause for unauthorized transactions of $50 or more for credit card holders. The cardholder is given 60 days to report the transaction from the issuance of a statement. Additionally, if the card is reported lost or stolen, they may not be held liable for any subsequent charges. 

On the other hand, for a debit card chargeback, the Electronic Funds Transfer Act (Regulation E) applies. This applies to consumer liability for up to $50 for transactions reported within two days, and if reported later, the liability is up to $500. Additionally, for any transactions which are disputed after 60 days, the cardholder is liable for the total amount. 

 



What do credit and debit card chargebacks mean for businesses?

A business taking online payments is open to threats posed by chargebacks. However, by having an effective chargeback strategy, the loss of revenue can be mitigated. 

By understanding what the regulations are and how to handle chargebacks, businesses stand a better chance of resolving disputes. This requires an understanding of the entire chargeback process, including evidence compilation. This can help in cases of true fraud and of friendly fraud. 

Chargeback management solutions like Justt can ensure that you have protection in place to prevent the unnecessary loss of revenue. As the service operates as a success-based fee solution, there are no extra costs to you. You only pay when money is returned to you.

To learn about how Justt can help your business recover lost revenue, read more on the Justt blog.  

 

 


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