The good news? Most chargebacks are preventable, and many are winnable when handled correctly.

In this guide, we’ll break down why chargebacks happen, how the chargeback process works from start to finish, and what merchants can do to successfully dispute and reduce them.

What Is a Chargeback?

A chargeback occurs when a cardholder disputes a transaction directly with their bank instead of the merchant. The bank temporarily reverses the transaction while it investigates the claim.

Originally designed as a consumer protection tool, chargebacks have become a major operational risk for merchants — especially in card-not-present, e-commerce, and subscription-based businesses.

The Most Common Causes of Chargebacks

Understanding why chargebacks happen is the first step toward reducing them. The majority fall into a few predictable categories.

1. Fraud or Unauthorized Transactions

This occurs when a cardholder claims they didn’t authorize the purchase. These are most common in online and phone-based transactions.

Why it happens:

• Stolen card data
• Weak fraud controls
• No address verification or CVV checks

2. “Friendly Fraud”

Friendly fraud happens when a legitimate customer disputes a charge they don’t recognize or simply forgot about — or when a family member made the purchase.

Common examples:

• Business name doesn’t match what appears on the statement
• Subscription renewals
• Buyer’s remorse

3. Product or Service Not as Described

Customers may dispute a transaction if they believe the product quality, delivery, or service didn’t match expectations.

Typical triggers:

• Vague product descriptions
• No clear refund policy
• Shipping delays

4. No-Show or Canceled Transactions

Common in hospitality, rentals, and appointment-based businesses, these chargebacks occur when customers dispute cancellation or no-show fees.

5. Duplicate or Incorrect Charges

Simple processing mistakes — such as charging twice or entering the wrong amount — can lead to immediate disputes.

How the Chargeback Process Works (Step by Step)

Chargebacks follow a structured, time-sensitive process. Missing a step can automatically result in a loss.

Step 1: Customer Files a Dispute

The cardholder contacts their issuing bank and submits a chargeback claim.

Step 2: Funds Are Temporarily Reversed

The transaction amount is pulled from the merchant’s account, and a chargeback fee is assessed.

Step 3: Merchant Is Notified

The merchant receives a chargeback notice with a reason code explaining why the dispute was filed.

Step 4: Merchant Responds (Representment)

The merchant has a limited window — often 7–30 days — to submit evidence to contest the chargeback.

Step 5: Bank Review & Decision

The issuing bank reviews the evidence and decides whether to return the funds to the merchant or uphold the chargeback.

Step 6: Final Outcome

• Win: Funds are returned (fees usually remain).
• Loss: Funds are permanently withdrawn and the chargeback counts toward your ratio.

How Merchants Can Win Chargeback Disputes

Winning disputes comes down to preparation, documentation, and speed.

1. Respond Quickly

Late responses are automatically declined. Treat chargebacks as urgent.

2. Submit Strong Compelling Evidence

This may include:

• Signed receipts or invoices
• Proof of delivery
• IP address and device data
• AVS and CVV match results
• Terms and refund policies accepted at checkout

3. Match Evidence to the Reason Code

Sending irrelevant documents hurts your case. Always tailor your response to the specific dispute reason.

4. Be Clear and Organized

Banks review thousands of disputes. Clean, well-labeled evidence improves outcomes.

How to Prevent Chargebacks Before They Happen

Prevention is far cheaper than disputing.

Use Fraud Prevention Tools

• Address Verification Service (AVS)
• CVV checks
• EMV chip and contactless payments
• Tokenization and encryption

Set Clear Policies

• Display refund and cancellation policies clearly
• Require customers to acknowledge terms
• Use recognizable billing descriptors

Improve Customer Communication

Many chargebacks happen because customers can’t reach the merchant. Make refunds easy and support accessible.

Monitor Chargeback Ratios

Most processors flag merchants who exceed:

• 0.9% chargeback ratio
• 100 chargebacks per month

Staying below these thresholds protects your account and pricing.

Why Chargebacks Matter More Than Ever

High chargeback levels can result in:

• Higher processing rates
• Account monitoring programs
• Frozen funds
• Merchant account termination

Processors and card networks are far less forgiving than they were a decade ago — making education and prevention critical.

Final Thoughts

Chargebacks aren’t just a cost of doing business — they’re a signal. When merchants understand why disputes happen, how the process works, and how to respond effectively, they can dramatically reduce losses and protect their ability to accept cards.

Working with a knowledgeable payment partner that provides education, fraud tools, and proactive support can make the difference between a healthy account and a high-risk one.