Chargeback
Also known as: Payment Dispute, Card Dispute, Transaction Reversal
A chargeback is a forced payment reversal initiated by a cardholder's bank, pulling funds and fees out of your account to refund the customer.
Definition
A chargeback happens when a customer disputes a transaction with their card issuer instead of contacting you for a refund. The issuing bank pulls the disputed amount from your merchant account, tacks on a fee, and asks you to prove the charge was legitimate.
In practice, chargebacks flow through the card networks (Visa, Mastercard, Amex, Discover) under specific reason codes — fraud, product not received, subscription not cancelled, duplicate charge, and so on. Your billing team has a fixed window (usually 7–20 days depending on the network) to submit evidence: receipts, delivery confirmation, login records, signed agreements, cancellation policy screenshots.
Chargebacks are not the same as refunds. A refund is voluntary and customer-initiated through you; a chargeback is involuntary, costs you extra in fees, and counts against your dispute ratio with the card networks.
Why It Matters
Every chargeback hits you three times: lost revenue, a non-refundable dispute fee (typically $15–$25 per case), and a tick against your chargeback ratio. Cross the network thresholds — usually 0.9% to 1.5% of transactions — and you land in monitoring programs that bring higher reserves, higher processing rates, or outright loss of your merchant account.
Teams that ignore chargebacks watch margin quietly bleed out. Subscription businesses are especially exposed because failed cancellations and unrecognized recurring charges drive 'friendly fraud' disputes from customers who forgot they signed up. Without clear billing descriptors, easy self-service cancellation, and disciplined evidence collection, you lose disputes you should win and your processor starts treating you as high-risk.
Examples in Practice
A SaaS company charges a customer the annual renewal on a credit card from 11 months ago. The customer doesn't recognize the descriptor, calls their bank instead of support, and files a fraud chargeback. The billing team submits the original signup terms, login activity from the past 90 days, and the renewal notice email — and wins the dispute.
An ecommerce brand ships a $400 order that the customer claims never arrived. The chargeback comes in under 'product not received.' Because the team uses signature-required delivery on orders above $300, they pull the carrier proof of delivery and signature, submit it as evidence, and the issuer reverses the chargeback in their favor.
A 50-person agency offering a recurring retainer gets hit with a chargeback from a client who claims they cancelled. The ops team pulls the signed agreement, the email thread where the client requested to pause not cancel, and time-stamped Slack messages. They win the dispute but use it as the trigger to formalize written cancellation policies in every new contract.