What is a chargeback? How card disputes work and how to prevent them

A chargeback is the reversal of a card payment by the cardholder's bank after the cardholder disputes it. Visa describes a dispute as the reversal of all or part of a transaction's value by the card issuer to the acquirer, and usually by the acquirer to the merchant. The merchant can accept the loss or contest it with evidence.

How the process works

  1. The cardholder disputes a charge with their bank. Card networks typically allow this within 120 days of the payment, and longer in some cases, such as a future event where the clock starts on the event date.
  2. The money is pulled back. Your payment provider debits the disputed amount, usually plus a dispute fee, and holds it while the case is open.
  3. You respond. You usually have 7 to 21 days, depending on the network, to submit evidence such as delivery confirmation, order details and customer messages.
  4. The issuer decides. This usually takes 60 to 75 days, so the full cycle often runs two to three months.

Some networks start with an inquiry, a request for information before any money moves. Stripe notes that ignoring an inquiry can lead to a chargeback you cannot win.

Why it matters for an online store

A lost chargeback costs more than the sale. In a hypothetical case, a disputed $80 order that you lose costs the $80, the goods and shipping you already paid for, and a dispute fee of, say, $15, which is non-refundable with many providers. Card networks also track dispute rates, and a high rate can put a merchant into a monitoring program.

U.S. consumers have their own route: under the Fair Credit Billing Act, the FTC explains that a cardholder disputing a billing error writes to the issuer within 60 days after the first bill with the error was sent, and the issuer must resolve the dispute within 90 days of getting the complaint.

How to prevent chargebacks

  • State return, refund and cancellation policies clearly at the time of purchase.
  • Charge the card after you ship physical goods, and tell customers about delays.
  • Use a billing name customers recognize on their statements.
  • Use 3-D Secure: fraud chargebacks on authenticated payments typically shift liability to the issuer, though this is not guaranteed.
  • Refund quickly when a customer contacts you. Once a dispute is open, your provider may not let you refund outside the dispute process.

Common confusions

A refund is a merchant's choice; a chargeback is forced by the issuer. Who handles chargebacks depends on who the merchant of record is, and your payment gateway or processor is where the notices and evidence flow.

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