Chargebacks Explained and How to Fight Them

If you haven’t received a chargeback yet, you’re bound to at some point. These simple disputes can cause a lot of hassle for online businesses in terms of time, money, and reputation. In 2019, merchants lost 4.4% of their revenue due to chargebacks.

What’s a chargeback? How do they work? What responsibilities do you have as the merchant when a customer files one? We break down everything in this article.

What Is a Chargeback?

A chargeback – also called a payment dispute – occurs when a card holder asks the card-issuing bank to reverse a transaction. If the card-issuing bank agrees with the customer, the transaction amount is removed from your merchant account along with any applicable fees. A chargeback can occur on debit cards (and the bank account they’re attached to) or on credit cards.

Card holders need the ability to dispute payments to protect themselves from unauthorized transactions and inappropriate behavior by merchants. They play a healthy role in our financial system, but they can be a real pain for merchants when customers submit disputes in error or fraudulently.

Depending on your payment processor, you may have to pay a fee if you’re found at fault for a chargeback. This is to compensate them for the time it takes to manage your case and to discourage you from behaving in ways that attract chargebacks.

A chargeback is not a refund. If a customer wants their money back, they’re supposed to contact you first. You can also initiate a refund at any time through your payment processor. Do not instruct customers to file disputes to get their money back!

Why Do Customers File Chargebacks?

Every situation is different, but here are the main reasons customers file chargebacks.

  • The customer never received the item or service they ordered.
  • The product or service was charged at a higher rate than the customer expected
  • The customer expected a refund, but didn’t receive one in a timely manner.
  • The customer doesn’t believe you provided a quality product or service, or didn’t provide the product or service as advertised. This type of chargeback often occurs after the customer is denied a refund by the merchant.
  • The customer doesn’t recognize your name on their bank statement, leading them to believe someone charged them fraudulently.
  • The customer asked you to cancel their recurring subscription, but for some reason, the next charge went through.
  • The customer tried to commit fraud. Upon investigation, they may claim they never received the product or service. Or they may hope you neglect to fight the chargeback.

Chargeback Process

During a dispute, the funds are kept out of your merchant account until there’s a resolution. If the bank rules in your favor, the funds are returned to you. This process generally takes 60-90 days. The degree to which you’re involved is different for each payment processor.

Here’s how the process usually occurs:

  1. The customer makes a purchase, whether online, in person, or through an app.
  2. The customer initiates the chargeback for one of the reasons we outlined above by contacting their issuing bank (the credit card company).
  3. The issuing bank communicates with the merchant’s bank about the claim.
  4. The merchant’s bank asks the merchant (that’s you) for evidence to refute the claim, like invoices, proof of delivery, recipients, or anything else that indicates the transaction was legitimate and valid.
  5. The card-issuing bank reviews the evidence and decides whether the purchase was valid. This part of the process takes the longest.
  6. The card-issuing bank shows the evidence to the customer. The customer can either accept the transaction or continue the dispute through arbitration. If the card issuer determines the transaction was invalid, the customer gets their money back.
  7. If the merchant and issuing bank fail to come to an agreement, they go through an arbitration process that’s governed by the issuing bank. The decision is final.

Part of contesting a payment dispute means sending a chargeback rebuttal letter to the card-issuing bank. The mainstream payment processors create this for you, but you’ll probably have to fill out a short form to give them whatever they need to fight on your behalf.

Ultimately, the card issuer has the final word over whether the transaction was valid. But if you aren’t happy with their decision, you can always seek recourse through the court system.

Your payment processor will notify you if a customer files a dispute. In Stripe, for instance, a part of your dashboard is dedicated to disputes. Clicking into a dispute gives you more information on that case and what you need to provide to defend yourself.


How to Fight Chargebacks

As a merchant, it’s important that you don’t assume all chargebacks are valid. If you think a chargeback is illegitimate, fight it using the process laid out for you by your payment processor. These steps will increase your odds of winning the case.

1. Contact the Customer Directly

Sometimes customers will dispute a payment with their card issuer before ever speaking with the merchant. In fact, according to an eConsumer Services survey, more than 80% of shoppers talk to their bank before contacting the merchant to dispute transactions.

Talking to the customer can clear up confusion quickly. For instance, if the customer didn’t recognize your name on their statement, you can explain that the charge came from you. If the customer has a complaint about your product or service, you can resolve it without involving the issuing bank. Then ask the customer to drop their chargeback.

That said, don’t rely on the customer to drop their complaint. Follow the chargeback process as required by your payment processor. Make sure to include evidence (receipts, email conversions, etc.) that you resolved it on your own.

2. Respond to the Dispute Quickly

Card-issuing banks set deadlines for your responses to chargebacks. They generally give you 7-10 days to respond to the claim with evidence.

If you miss a deadline, you lose the case. There’s no leeway here, so make sure you supply anything asked as quickly as possible to have the best chances of winning. That said, don’t rush to submit until you have all the evidence you need to support your case.

3. Provide Thorough and Robust Documentation

Card-issuing banks are looking for documentation and evidence that the customer ordered and received the product or service legitimately. Send screenshots of tracking information, email correspondence, notes from phone calls, and any other documentation available. Include your documented return, refund, shipping, and exchange policies if relevant.

It’s always better to send more information than you think you’ll need. And if something develops after you submit evidence (maybe you and the customer have a conversation you want to mention to the issuing bank), send that too.

Most importantly, be sure to provide any documentation the issuing bank specifically requests. That will be pivotal to your case.

4. Respond to the Chargeback Code

Your initial chargeback notice will include a “reason code” that classifies the reason that the customer requested the chargeback. For instance, Visa chargeback codes are organized into four categories.


Make sure your response to the card-issuing bank provides your story and evidence that responds to the code. For instance, if the chargeback reason code alleges that merchandise was counterfeit, you should provide evidence that it wasn’t. If you don’t address the customer’s issue, there’s a good chance you’ll lose the case.

5. Concede If You’re in the Wrong

Let’s say you speak to the customer and learn that their payment dispute is valid. Perhaps you made a mistake or neglected to give the sale the time it deserved. In these cases, it’s best to refund the customer and send evidence of the refund to the card issuer.

If you simply let the dispute play out and lose the case, you’ll end up with a chargeback on your record. If you get too many chargebacks, you may be dropped by your processor or refused service by the card-issuing banks.

Sometimes, it may be best to refund the customer even if you think you’re right because it’s not worth fighting the chargeback. For instance, if a customer claims you never performed a service, and you don’t have any evidence to prove you did, there’s a good chance you’ll lose the case. In this instance, it may be smarter to send the refund, report the refund to the issuing bank, and then improve your workflow to create evidence of every sale.

Key Takeaway

Chargebacks are unfortunate necessities of accepting credit and debit cards as forms of payment. If you take steps to prevent as many chargebacks as possible and respond to them quickly, they don’t have to be a drain on your time, wallet, or sanity.