What happens during a chargeback in payment processing?

During a chargeback, the card issuer indeed demands that a retailer reverse a transaction. This typically occurs when the customer disputes a charge on their account for reasons such as unauthorized use, dissatisfaction with the goods or services received, or failure to receive the goods entirely. The chargeback process is a consumer protection mechanism that allows the customer to seek recourse through their card issuer instead of directly dealing with the retailer.

When a chargeback is initiated, the card issuer reviews the circumstances surrounding the dispute, which can include investigating the transaction, verifying details, and possibly reaching out to the retailer for their perspective. If the chargeback is approved, the retailer's account is charged the amount of the transaction, effectively reversing the sale. This process serves not only to protect consumers but also signifies a risk to retailers, as excessive chargebacks can lead to penalties from card brands or even the risk of being classified as a high-risk merchant.

In this context, the other options do not accurately describe a chargeback process. A request for a refund from the customer to the retailer is a standard practice that does not involve the card issuer. A retailer voluntarily canceling a transaction or flagging a transaction as suspicious does not align with the definition and mechanics of a chargeback either,