Chargeback

A chargeback is a reversal of a credit or debit card transaction, initiated by the cardholder's bank when a customer disputes a charge. It returns the funds to the customer while the merchant bears the financial loss.

What Is a Chargeback?

A chargeback occurs when a cardholder contacts their bank to dispute a transaction. The bank reverses the charge, pulling the funds back from the merchant. Unlike a refund (initiated by the merchant), a chargeback is forced by the card issuer.

Common Chargeback Reasons

Fraud: Unauthorized use of the card

Not as described: Product or service didn't match expectations

Non-delivery: Item never arrived

Duplicate charge: Customer was billed twice

Subscription disputes: Customer forgot about recurring billing

The Chargeback Process

1. Customer disputes the charge with their bank

2. Bank issues a provisional credit to the customer

3. Merchant is notified and debited the transaction amount + a chargeback fee ($15-100)

4. Merchant can respond with evidence (representment)

5. Bank decides based on evidence — merchant wins or loses

Chargeback Costs for Businesses

Transaction amount: Returned to customer

Chargeback fee: $15-100 per dispute

Merchandise/service loss: If product was already delivered

Ratio monitoring: Visa/Mastercard penalize merchants with chargeback rates above 1%

How to Prevent Chargebacks

Clear billing descriptors (so customers recognize charges)

Transparent refund policies

Prompt customer service

Delivery confirmation/tracking

Clear subscription terms and easy cancellation

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