What is a chargeback?

A chargeback refers to a process where a customer disputes a transaction, leading to the reversal of that transaction and the subsequent return of funds to the customer. This typically occurs when a customer believes that a purchase was unauthorized, the goods or services were not received, or the transaction was otherwise problematic. The chargeback is initiated by the customer, usually through their bank or credit card issuer, and results in the merchant's funds being held temporarily as the dispute is investigated.

Understanding this concept is critical for businesses that accept electronic payments, as chargebacks can impact their financial performance, reputation, and relationships with payment processors. Merchants must have procedures in place to manage disputes effectively and reduce the likelihood of chargebacks, as high chargeback rates can lead to penalties from payment networks and increased processing fees. The other options, while related to financial transactions, do not accurately represent the nature and implications of chargebacks.