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

Related Terms

Virtual Card

A virtual card is a digital payment card number generated for online or remote transactions without a physical plastic card. It has a card number, expiration date, and CVV — just like a physical card — but exists only digitally. Virtual cards can be single-use, merchant-locked, or set with spending

ABA Routing Number

An ABA routing number is a nine-digit code that identifies a specific financial institution in the United States. Assigned by the American Bankers Association, it ensures money moves to the right bank during electronic transfers, direct deposits, and check processing.

Check Clearing

Check clearing is the process of moving funds from the check writer's bank account to the recipient's bank account. It involves verifying the check is legitimate, confirming sufficient funds exist, and transferring the money between banks. The entire process typically takes 1-3 business days, though

KPI

A KPI (Key Performance Indicator) is a measurable value that shows how effectively a business is achieving its most important objectives. KPIs aren't just any metric — they're the specific numbers that matter most to your business's success. Revenue growth rate, customer acquisition cost, and net pr