Chargeback
A chargeback is the reversal of a card transaction started by the cardholder's bank (the issuer) under card scheme rules after the cardholder disputes it, for reasons such as fraud or goods not received. The merchant's bank (the acquirer) debits the merchant, who can contest it through representment and, if needed, scheme arbitration.
Roles that need it
What it is
A chargeback is the reversal of a card transaction, started by the cardholder’s bank (the issuer) under the rules of the card scheme, after the cardholder disputes it. The issuer sends the chargeback with a reason code, such as fraud, goods not received, goods not as described, duplicate processing or a cancelled subscription. The merchant’s bank (the acquirer) debits the merchant, which can accept the loss or contest it with evidence. Contesting is called representment. If the parties still disagree, the case can go to pre-arbitration and then to arbitration by the scheme, which decides who bears the loss.
Why it matters
Chargebacks protect cardholders and give them a route when a merchant fails to deliver. For merchants they mean lost revenue, a fee per case and operational work. Schemes monitor merchants with high chargeback or fraud ratios and can impose fines or remediation programmes, and the acquirer may then hold reserves or end the relationship. For acquirers, chargebacks are a credit risk: if a merchant fails before delivering goods that customers prepaid, the acquirer pays the chargebacks it cannot recover from the merchant.
Worked example
Illustrative numbers. An online shop processes 20,000 card payments a month with an average value of 60 euro. It receives 120 chargebacks: 70 for fraud, 30 for goods not received and 20 for goods not as described. The chargeback ratio is 0.6% (120 divided by 20,000). Each chargeback costs the shop the sale value plus a 15 euro fee, so the 120 cases cost 9,000 euro (120 times 75 euro). The shop contests 40 cases with delivery proofs and wins 25, recovering 1,500 euro of sales. A ratio approaching 1% would draw the acquirer’s attention and could lead to a scheme monitoring programme.
Who uses it
Chargeback and disputes analysts (AML-CHARGE) manage cases, deadlines and evidence. Payments operations analysts (PAYOPS) process the money flows of disputes. Merchant underwriting and risk analysts (ACQRISK) watch chargeback ratios and set reserves. Merchant acquiring sales executives (MERCHSALES) explain dispute processes and costs to merchants. Payments partnerships managers (ACQPART) agree dispute handling with gateways and platforms. Fraud analysts (AML-FRAUD) study fraud chargebacks to improve controls.
Common confusions
A chargeback is different from a refund: the merchant starts a refund voluntarily, while the issuer starts a chargeback. In the EU, the right to a refund for an unauthorised payment comes from the Payment Services Directive, while chargebacks for disputes such as goods not received come from scheme rules. Friendly fraud describes a cardholder who disputes a payment that was in fact genuine. Finally, strong customer authentication and 3-D Secure can shift fraud chargeback liability from the merchant to the issuer; disputes about delivery remain possible.