Chargeback
A chargeback is a forced reversal of a credit or debit card transaction, initiated by the cardholder's bank (the issuer). The cardholder contacts their bank, the bank pulls the money back from your account, and you get a window to respond with evidence. If you don't respond, or your evidence is weak, you lose the money and pay a fee on top.
The terms "chargeback" and "dispute" are often used interchangeably. Technically, a dispute is the customer's claim; a chargeback is the financial reversal. In practice, most processors (Stripe, Square, PayPal) call them disputes in their dashboards.
Why It Matters
Chargebacks cost more than the transaction amount. Every chargeback includes:
| Cost Component | Typical Range |
|---|---|
| Transaction amount | Whatever the customer paid |
| Chargeback fee | $15-100 per dispute (processor-dependent) |
| Staff time | 30-60 minutes gathering evidence and responding |
| Ratio damage | Each one pushes you closer to network monitoring programs |
A $50 chargeback doesn't cost you $50. It costs you $50 + $25 fee + $20 in staff time = $95. And it counts against your chargeback ratio.
How the Process Works
- Customer contacts their bank. They say the charge was unauthorized, the product never arrived, or it wasn't what they expected.
- The bank files a dispute. Money is debited from your account (or held from future payouts).
- You receive notification. Your processor alerts you, typically with 20-45 days to respond.
- You respond or accept. Submit evidence proving the transaction was legitimate, or accept the loss.
- The bank decides. The issuer reviews your evidence and either reverses the chargeback (you win) or upholds it (you lose).
- Pre-arbitration (optional). Either side can escalate. This adds more fees and is rarely worth it for small amounts.
The full process takes 60-120 days from dispute to final resolution.
Key Numbers
| Metric | What "Good" Looks Like |
|---|---|
| Chargeback ratio | Under 0.5% of transactions |
| Processor danger zone | ~0.9% ratio (processors flag you here; VAMP merchant excessive is 2.2%, tightening to 1.5%) |
| Mastercard ECM threshold | 1.5% or 100 disputes/month |
| Win rate | 40-60% with strong evidence |
| Response rate | 100% (always respond, even if you expect to lose) |
Common Mistakes
- Not responding. Even if you think you'll lose, submitting evidence sometimes works. An uncontested chargeback is a guaranteed loss.
- Ignoring the ratio. One chargeback doesn't matter. A pattern does. Visa and Mastercard track your ratio monthly, and breaching their thresholds triggers monitoring programs with monthly fines of $10,000-$25,000.
- Confusing fraud chargebacks with friendly fraud. A stolen card is real fraud. A customer who bought something, received it, and disputed anyway is friendly fraud. Different problems, different solutions.
- Waiting too long to refund. A $50 refund costs you ~$3 in lost interchange. A $50 chargeback costs you $75+. When a customer complains, refund fast.
What to Do First
If you just got your first chargeback, don't panic. Read Your First Chargeback for the step-by-step response.
If your ratio is climbing, Reduce Chargebacks Fast covers the highest-impact actions you can take this week.
See Also
- Your First Chargeback - Step-by-step guide for responding to your first dispute
- Chargeback Lifecycle - How disputes move from filing to resolution
- Chargeback Metrics - Calculating your ratio and understanding thresholds
- Reason Codes - What each dispute reason code means and how to respond
- Reduce Chargebacks Fast - Highest-impact actions for reducing your ratio
- Friendly Fraud - When customers dispute legitimate purchases