Chargeback
A forced reversal of a card payment initiated by the customer's bank after a dispute.
A chargeback happens when a cardholder disputes a charge with their issuing bank, which reverses the payment and usually adds a fee. Unlike a refund, it's outside the merchant's control and counts against your chargeback ratio. Too many can jeopardise your merchant account.
How it works
The bank drives this, and you are the last to hear. The cardholder files a dispute with their issuing bank under a reason code: goods not received, say, or fraud. The issuer credits the cardholder provisionally and pulls the funds back through the network from your acquirer, which debits your account. That reversal is the chargeback. Only then do you get a notice carrying the reason code and a deadline, set by your processor inside the network's response window, to submit evidence. Your reply is called representment.
It costs more than the sale did. You lose the goods, the original transaction fee, and the amount itself, and most processors add a chargeback fee on top, commonly in the $15 to $40 range and higher on high-risk accounts, charged whatever the outcome. A few providers waive it. Winning gets the transaction amount back but usually not the fee. The bigger exposure is your chargeback ratio: sustained levels above the networks' monitoring thresholds bring fines, reserves, or account closure.
Most of them are not criminal fraud, either. A large share are friendly fraud: a real customer who does not recognise the billing descriptor on their statement, or who forgot about a subscription. Set the descriptor to your trading name with a phone number beside it and a surprising number of cases disappear before they start. One more trap worth knowing: refunding after a dispute has been filed does not withdraw it, so check the dispute queue before you issue any refund or you can pay twice.
Worked example
You win the dispute and you are still $25 down. The sale was a $180 pair of boots; six weeks later the cardholder filed for goods not received, your acquirer took back the $180 and added a $25 chargeback fee, leaving you $205 down plus the stock. Tracking showing delivery won it, so the $180 came back. The $25 did not, and neither did the several hours of admin.
Frequently asked questions
- How long does a chargeback take to resolve?
- Most cases close within 30 to 90 days of the cardholder filing. Your evidence window is short inside that, often a week or two, and then the issuer reviews and rules, which can take another month or more. Cases escalated to pre-arbitration or network arbitration can run past six months, and arbitration carries fees of several hundred dollars for the losing side.
- Can I win a chargeback, and how?
- Merchants win a meaningful share of disputes, but only with evidence that matches the reason code. Goods not received calls for tracking and proof of delivery to the address on the order. An unrecognised charge calls for the order confirmation, IP address, AVS and CVV results, and any correspondence with the customer. Generic responses lose. A document pack aimed at the specific reason code wins.
- How many chargebacks are too many?
- Card-network monitoring programs typically start at around 0.9% to 1% of monthly transactions, with a minimum dispute count attached. Cross that and you land in a remediation program with per-dispute fines and a deadline to get back under. Acquirers grow uneasy well before the threshold, though, so a practical internal ceiling is half the network threshold, and any month above that deserves investigation.