What is a Chargeback?
A chargeback is when a customer disputes a charge with their bank instead of asking you for a refund. The bank reverses the transaction, takes the money from your account, and you have to prove the charge was legitimate to get it back.
Your first chargeback feels alarming. It's not. Every business gets them eventually. What matters is how you respond and what you do to prevent the next one.
The Real Cost of a Chargeback
A chargeback costs more than just the transaction amount:
| Cost | Typical Amount |
|---|---|
| Transaction amount | Whatever you sold |
| Chargeback fee | $15-25 per dispute |
| Product/shipping | Already gone if you shipped |
| Your time | 1-2 hours to respond |
| Ratio damage | Too many = account termination |
A $50 chargeback can easily cost you $100+ when you add it all up.
Why Chargebacks Happen
There are many reasons why a customer might initiate a chargeback, but they generally fall into one of three categories:
- Fraud: The cardholder claims they did not authorize the transaction. This can be either true fraud (a stolen card) or friendly fraud (the cardholder is lying).
- Merchant Error: The customer has a legitimate problem with the transaction, such as:
- They were billed the wrong amount.
- They never received the goods or services.
- The product was not as described.
- They were unable to get a refund from the merchant.
- Friendly Fraud: The cardholder is attempting to get something for free by disputing a legitimate transaction. This is a growing problem for merchants.
The Chargeback Process
Here's what happens when a customer disputes a charge:
The timeline:
- Customer disputes with their bank
- Bank gives customer a temporary refund
- Your processor takes the money from you and notifies you
- You have 20-45 days to respond with evidence
- Bank decides who wins
Miss the deadline? You lose automatically. See chargeback lifecycle for the full process.