What a chargeback is
A chargeback occurs when a cardholder disputes a charge through their issuing bank, which can reverse the transaction and pull funds back from the merchant. It is distinct from a refund, which the merchant initiates.
The dispute lifecycle
A dispute moves through initiation, notification, evidence (representment), and resolution. Each stage has deadlines, and timely, complete documentation improves outcomes.
Common reasons
- Fraud — the cardholder claims they did not authorize the transaction.
- Product or service not received, or not as described.
- Duplicate or billing errors.
- Subscription or recurring billing disputes.
Impact on processing
Chargeback rates above a network threshold can trigger monitoring, reserves, holds, or termination. Managing disputes proactively protects account stability.
Prevention
Clear descriptors, accurate billing, delivery confirmation, strong customer communication, and fraud screening reduce disputes. Prevention is more effective than recovery.
Representment
When a dispute is unwarranted, merchants can submit evidence to challenge it. Compelling, organized documentation — contracts, delivery proof, communications — improves the chance of reversal.