So, What Exactly is a Chargeback?
The Buyer’s “Undo” Button
Besides being a major pain in the neck, a chargeback is a customer-initiated reversal of an electronic payment. The main difference between a chargeback and a refund is that customers initiate chargebacks by placing a dispute with their card issuer. A refund, on the other hand, is the result of a merchant and customer mutually agreeing to credit the customer back through a direct interaction. A refund is usually less contentious and also involves a return of merchandise, whereas a chargeback may not.
What Happens Next?
A chargeback results in the forcible reversal of a transaction, thereby causing the transaction amount to be taken from your merchant account and credited back to your customer’s credit card. If you do nothing in response to a chargeback, the sale will effectively be cancelled and the customer will receive their money back as well as the product or service they have already received. If you want to avoid this outcome, you must file a counter claim and provide proof that the customer approved the transaction.
What Does a Chargeback Cost?
In addition to costing a merchant the amount of the sale and the actual inventory sold, chargebacks can result in other fees and penalties charged by their processor as well as the internal time spent fighting the disputed charge. Merchants with excessive chargeback rates (typically greater than 1% or 1.5% of all transactions) may find themselves unable to qualify for a merchant account or placed on the MATCH list.
Chargebacks Can Happen to Anyone
Although online and high-risk merchants tend to deal with chargebacks on a more frequent basis than traditional retail merchants, all businesses that accept credit card payments are vulnerable to chargebacks. Luckily, it is possible for merchants to successfully dispute chargebacks, recover their funds, and keep their chargeback rates low. Below, we’ve listed some of the best strategies for fighting a chargeback and winning a chargeback dispute.
4 Ways You Can Fight Chargebacks
1. Resolve Complaints Through Customer Service
Proactive and effective customer service can go a long way toward resolving chargebacks or preventing them altogether. Chargebacks are most commonly initiated when customers feel as if they are unable to obtain a refund through your customer service department. By clearly displaying your customer support contact information on your website and making your refund policies available to customers, you can prevent buyers from feeling powerless and perhaps encourage them to think twice before pursuing a chargeback.
When a customer initiates a chargeback, you’ll typically have a small window of time (7-10 days through MasterCard, 30 days through Visa) to dispute it through Visa and MasterCard’s established channels. In this period of time, it can often be helpful to contact the customer directly and inquire as to the reason for the chargeback. Customers can undo chargebacks by contacting their card issuer, so reaching out to the dissatisfied party in a genuine and timely manner may persuade them to stop pursuing the claim.
If the customer’s complaint is valid, you should issue a refund as soon as possible rather than concede the chargeback. If you feel that a refund is not in order, this exchange may at least provide some idea of why the customer felt compelled to initiate a chargeback rather than request a refund in the first place. This information will be useful both during the dispute process and when assessing your chargeback prevention policies.
A good general rule:
If you believe the customer is in the right to request a reversal of the sale, refunding the customer is the recommended course of action. However, if you believe the customer’s complaint is without merit or perhaps an attempt to avoid paying for a legitimate transaction, evaluate your chances of winning a chargeback dispute.
If you do not feel 100% confident that you will win the chargeback dispute due to a lack of documentation, an inability to respond on time, or any other factors that put the strength on the customer’s side, you may be better served by issuing the refund instead of risking a defeat to your counter-claim. It may seem like a senseless loss to concede the funds, but, by doing so, you can avoid a hit to your chargeback success rate and save yourself the headaches involved with the chargeback process. Issuing a refund is always preferable to losing a chargeback dispute.
That being said, if you have solid documentation and the time and energy to contest the chargeback, you should by all means submit a counter claim and try to recover your money.
Visa Merchant Purchase Inquiry
In February 2018, Visa shortened and streamlined its chargeback process for merchants and customers. One change that the company made was the introduction of a simple plug-in to Visa’s chargeback resolution program called Merchant Purchase Inquiry. Whenever a customer files a chargeback against a merchant who uses Merchant Purchase Inquiry, Visa will immediately check the available details surrounding the transaction and offer the merchant three options:
- Respond with additional data (provide transaction-specific data such as a description of goods purchased or device used)
- Respond with customer credit (credit the cardholder prior to receiving a dispute)
- Respond with additional data and a credit
Through this system, Visa enables you to offer one of these resolutions to the customer’s issuing bank before the chargeback process begins in order to avoid the entire process. Visa will also scan its transaction records for any transactions that appear to have resolved the dispute (for instance, a payment from you to the customer in the same amount as the transaction) and supply this to the customer’s issuing bank. Merchant Purchase Inquiry is an entirely optional step, but you may be able to save a lot of time with this approach.
2. Gather Transaction Records
If a customer won’t accept a refund, or if you want to fight the chargeback, you will be faced with the burden of providing evidence to contest the customer’s claim. This evidence will usually be some sort of transaction or delivery documentation, including (but by no means limited to):
- signed receipts
- delivery or pickup notification
- any communication between you and customer regarding the transaction
- the customer’s IP address and the download time and date (if a digital service)
- evidence proving that a customer lives or works at the delivery address
- evidence that the customer has previously used the same transaction information to process undisputed purchases
- evidence that someone related to the customer could have made the purchase with the customer’s card
Today, much of this information can be captured and stored digitally through point-of-sale systems. Keeping organized transaction records will help to ensure that you can assemble all of the necessary evidence within the short timeframe allowed.
3. Respond Quickly
Once you receive notification that a chargeback will proceed, you should quickly and efficiently prepare a response. A chargeback dispute must travel through several levels of review and authorization and will be subject to scrutiny by multiple parties, so it is essential that you present your evidence clearly and with urgency.
Your first step should be to take note of all applicable deadlines, which may vary depending on the processing network involved. You’ll want to ensure that these deadlines will be monitored and met. You may want to prepare a spreadsheet ahead of time to store this information, or you could schedule notifications in some sort of digital calendar. You should also ensure that all documentation is formatted properly (saved in the file types required by Visa/MasterCard and arranged in the correct sequence) and sent via the appropriate channels as specified by the card network.
One helpful strategy is to prepare a chargeback response template ahead of time, with all of the general information and paperwork pre-assembled, and then fill in or attach case-specific evidence when a chargeback occurs. General information that could be included in this template may be your business’s return policy, terms of use, delivery schedule, and/or other contracts or agreements which could be applicable to all potential chargeback cases. This will save you the trouble of having to re-learn the process each time a new chargeback arises.
Chargeback Reason Codes
Your initial chargeback notification will include a particular “reason code” used to classify the chargeback. Just as it sounds, this is a number that corresponds with a particular reason that a customer might request a chargeback. These reasons can include a long list of issues, from fraud to non-delivery of services to processing errors, and the specific codes assigned to each problem vary between card networks.
Understanding a chargeback’s reason code is essential when preparing an effective chargeback dispute case. For instance, if the chargeback reason code alleges that merchandise was not delivered, you should provide tracking and delivery notifications, evidence that the customer lives or works at the product’s destination, or other proof that the customer received the product. Please note that some reason codes only allow a specific range of evidence, as the card networks do not want to sift through more information than they consider necessary. For this reason, you should be sure not to include irrelevant or excessive information and to follow any provided guidelines as to what evidence is admissible.
Compelling Evidence
As part of its 2018 overhaul, Visa consolidated its 22 reason codes into four distinct categories: fraud, authorization, processing errors, and customer disputes. The exact grouping of these codes can be seen below:


Visa also provides an extensive breakdown of specific evidence that you can submit to contest a claim under any of its codes. You can see that breakdown in its Visa Chargeback Management Guidelines.
As this document shows, allowable evidence includes a broad range of data, from photographs to signed invoices to IP addresses. You may have some or all of this information stored somewhere, but you should include only what is allowable and relevant. Be sure to arrange it in a sensible way; remember that Visa and MasterCard are not familiar with the case and will be seeing this information for the first time. By including clear, detailed, verifiable evidence and submitting this evidence ahead of the established deadlines, you can dramatically improve your chances of successfully contesting chargebacks.
4. Track Successful Dispute Methods
After you submit your rebuttal to the card network, the chargeback dispute is out of your hands. Your processor’s acquiring bank will review the information and, if necessary, forward it to the customer’s issuing bank. The card network will then make an ultimate decision about whether it will process the chargeback, and it will inform the customer of its decision.
Although a large portion of the chargeback dispute process is beyond your control, you can still learn from each chargeback. You should take note of which chargeback dispute attempts prove successful and then seek to replicate them. You should also keep track of common chargeback reasons. Is there a trend? For instance, if customers are frequently reporting fraudulent card swipes, you might look into your fraud prevention policies at the point of sale.
You Can Win!
The truth of the matter is that you have some level of control over your chargeback rate whether through prevention or through solid dispute procedures, which means that you always have a chance to recover your money. Chargeback disputes can be an expensive and time-consuming process, but you can save yourself headaches (and money) by establishing a sensible, efficient chargeback dispute process.
We want to hear from you! Share your chargeback stories in the comment section below. Tell us how you have successfully fought a chargeback claim, or what you learned from losing a chargeback dispute.