Chargeback
A forced transaction reversal initiated by the cardholder's bank after a dispute, resulting in funds being returned to the customer and fees charged to the merchant.
What is a Chargeback?
A chargeback is a reversal of a credit or debit card transaction, initiated by the cardholder's bank (issuer) rather than the merchant. When a customer disputes a charge with their bank, the bank can forcibly withdraw the funds from the merchant's account and return them to the customer. This process was originally designed to protect consumers from fraud and unauthorized transactions.
Chargebacks differ from refunds in important ways. A refund is voluntary—the merchant agrees to return money. A chargeback is involuntary—the bank forces the reversal regardless of the merchant's wishes. Chargebacks also carry additional fees (typically $15-100 per incident) and negatively impact the merchant's chargeback ratio.
Common reasons for chargebacks include: fraud (the cardholder didn't authorize the transaction), product not received, product not as described, duplicate charges, technical errors, and subscription cancellation disputes. Some chargebacks are legitimate, but 'friendly fraud'—where customers dispute valid charges—accounts for up to 70% of all chargebacks.
High chargeback ratios (above 1% of transactions) can result in serious consequences: higher processing fees, mandatory reserve funds, enrollment in monitoring programs, and ultimately termination of the merchant account. Preventing chargebacks through clear policies, good communication, and fraud prevention is essential for any business accepting cards.
Key Chargeback Facts
- Fees range from $15-100 per chargeback
- Banks favor cardholders in disputes (liability shift)
- Chargeback ratio above 1% triggers monitoring programs
- Friendly fraud accounts for up to 70% of chargebacks
- 3D Secure can shift liability back to card issuer
- Prevention is more cost-effective than fighting disputes
Real-World Examples
Common chargeback scenarios and how they occur.
Fraudulent Transaction
A stolen card is used to purchase €500 of products. The legitimate cardholder notices the charge and disputes it. The merchant loses both the money and the shipped goods.
Product Not Received
A customer orders a product that gets lost in shipping. Instead of contacting the merchant, they file a chargeback, claiming non-delivery.
Friendly Fraud
A customer receives a digital product, downloads it, then disputes the charge claiming they never authorized it. This is one of the most common chargeback types.
Subscription Dispute
A customer forgets about a subscription and doesn't recognize the recurring charge. They dispute it as unauthorized instead of requesting a refund.
Family Fraud
A child makes purchases on a parent's card without permission. The parent discovers the charges and files a chargeback claiming fraud.
Not As Described
A customer receives a product that doesn't match the website description. They file a chargeback instead of using the return policy.
Chargeback Protection with PayRequest
PayRequest helps minimize chargebacks through clear transaction descriptions, 3D Secure authentication, and digital delivery tracking.
3D Secure Authentication
All card payments include 3D Secure verification, which shifts fraud liability from you to the card issuer when customers authenticate.
Clear Billing Descriptors
Recognizable transaction descriptions help customers identify charges, reducing 'I don't recognize this' chargebacks.
Digital Delivery Tracking
For digital products, PayRequest logs when customers access their purchases—useful evidence if a chargeback is filed.
Customer Communication
Automated receipts and order confirmations ensure customers have clear records of their purchases.
Related PayRequest Features
Features that help prevent chargebacks.
Related Glossary Terms
Minimize chargebacks with PayRequest
3D Secure authentication, clear receipts, and digital delivery tracking help prevent disputes before they happen.