What Is a Chargeback?
A chargeback occurs when a customer disputes a credit/debit card transaction, forcing the bank to reverse the payment. This consumer protection mechanism was created by card networks (Visa, Mastercard, etc.) but often results in significant costs for businesses.
Key Chargeback Statistics:
The average chargeback costs merchants $190 (including lost goods, fees, and penalties)
60-80% of chargebacks are cases of “friendly fraud”
Ecommerce businesses see 0.5-1% of transactions charged back
How the Chargeback Process Works?
The 6-Step Chargeback Cycle:
Customer Dispute: Cardholder contacts bank
Provisional Credit: Funds temporarily returned
Merchant Notification: Business receives chargeback notice
Response Period: Typically 7-30 days to fight
Bank Review: Evidence evaluated
Final Decision: Chargeback upheld or reversed
Common Chargeback Reasons (Reason Codes)
Legitimate Reasons:
- Unauthorized transactions (stolen cards)
- Merchant errors (duplicate charges, wrong amounts)
- Undelivered goods
Problematic Reasons (“Friendly Fraud”):
- Buyer’s remorse disguised as fraud
- Family disputes (teenager uses parent’s card)
- Forgotten subscriptions
Chargeback Costs for Businesses
| Cost Component | Typical Amount | Description |
|---|---|---|
| Lost Revenue | 100% of transaction | Refunded amount |
| Chargeback Fee | 15−100 per case | Bank penalty |
| Product Loss | Variable | If goods aren’t returned |
| Higher Processing Fees | Long-term impact | Risk-based pricing |
How to Prevent Chargebacks
10 Proven Prevention Strategies:
Clear Descriptors: Make business name recognizable on statements
Detailed Policies: Clearly state return/refund terms
Prompt Communication: Respond to customer inquiries quickly
Delivery Confirmation: Always use tracking numbers
Fraud Screening: Implement AVS, CVV checks
Subscription Clarity: Send renewal reminders
Quality Control: Ensure products match descriptions
Easy Refunds: Make returns simpler than chargebacks
Transaction Documentation: Keep detailed records
Chargeback Alerts: Use services like Verifi/Chargeback Gurus
How to Fight Chargebacks (Representment)
Winning Your Case: Required Evidence
Proof of Delivery: Signed receipts/tracking
Customer Communications: Emails approving purchase
Transaction Records: AVS/CVV match results
Service Documentation: Login records for digital goods
Policy Acknowledgements: Terms customer agreed to
Response Template
[Your Business Name] [Date] To: [Bank Name] Re: Chargeback Case #[Number] We contest this chargeback because: 1. [Evidence 1] 2. [Evidence 2] 3. [Evidence 3] Please find attached: - Delivery confirmation - Customer communication - Signed order form Sincerely, [Your Name]
FAQs
Visa/MC: 120 days
Amex: Up to 365 days
Discover: 90-120 days
Excessive fraudulent chargebacks may lead to:
Account termination by processors
Civil lawsuits from merchants
Criminal charges in extreme cases
Refund: Voluntary merchant return
Chargeback: Forced bank reversal
Most processors terminate accounts at:
1% chargeback ratio (of total transactions)
100 chargebacks/month (absolute threshold)
