How Chargebacks Work
A complete guide to understanding the chargeback process — from the moment a dispute is filed to the final decision. Learn how to protect your business and your customers.
What Is a Chargeback?
A chargeback is a transaction reversal initiated by a customer's bank or card issuer. When a customer disputes a charge, the bank temporarily reverses the payment and investigates. Unlike a refund — which is initiated by the merchant — a chargeback bypasses the merchant entirely and goes directly through the card network (Visa, Mastercard, etc.).
The Chargeback Process Step by Step
Customer Initiates the Dispute
The customer contacts their bank or card issuer to report an issue with a transaction. This could be an unauthorized charge, a missing delivery, or a billing error. The customer selects a reason code that best describes their issue.
Bank Issues a Provisional Credit
The customer's bank temporarily reverses the charge and credits their account. This happens automatically to protect the consumer while the investigation is ongoing. The merchant does not get notified at this stage in many cases.
Merchant Receives Chargeback Notification
The payment processor (Stripe, PayPal, etc.) notifies the merchant of the chargeback. The notification includes the reason code, the disputed amount, and a deadline to respond. The merchant now has a limited window to contest.
Merchant Submits Evidence (Appeal)
The merchant can contest the chargeback by submitting a chargeback appeal with supporting evidence. This includes proof of delivery, customer authorization, communication logs, and a formal rebuttal letter. Missing the deadline means automatic loss.
Card Network Investigates
The card network (Visa or Mastercard) reviews the evidence from both sides — the customer's claim and the merchant's rebuttal. This process typically takes 10–45 business days depending on the network and complexity.
Final Decision is Made
The card network issues a final ruling. If the merchant wins, the funds are returned to the merchant. If the customer wins, the provisional credit becomes permanent. In most cases, the decision cannot be appealed again.
Common Chargeback Reason Codes
Each chargeback comes with a reason code that explains why the customer filed. Understanding these codes is critical for merchants.
| Category | Description | Common Reason |
|---|---|---|
| Fraud | Unauthorized transaction | Card stolen or compromised |
| Item Not Received | Customer never received the product | Delivery failure or wrong address |
| Item Not as Described | Product differs from listing | Misleading product description |
| Billing Error | Duplicate or incorrect charge | Charged twice for same order |
| Service Not Rendered | Service was not provided | Subscription not cancelled in time |
| Refund Not Processed | Merchant failed to issue refund | Refund request ignored |
Chargeback Timelines by Provider
| Provider | Time to Appeal | Resolution Time | Chargeback Fee |
|---|---|---|---|
| Stripe | 7–21 days | 10–30 business days | $15 USD |
| PayPal | 10–20 days | 10–20 business days | $20 USD |
| Visa | 20–30 days | 30–45 business days | Varies by acquirer |
| Mastercard | 20–45 days | 30–45 business days | Varies by acquirer |
How Chargebacks Impact Merchants
Revenue Loss
The disputed amount is reversed plus a chargeback fee is charged.
Chargeback Ratio Limit
Exceeding 1% chargeback ratio triggers account reviews and penalties.
Account Risk
High chargeback rates can lead to account suspension or termination.
How to Protect Your Business
Use Strong Authentication
Enable 3D Secure and two-factor authentication on all transactions.
Clear Billing Descriptors
Make sure your business name appears clearly on bank statements.
Track All Deliveries
Always use tracked shipping and keep delivery confirmation records.
Transparent Refund Policy
Clear refund policies reduce disputes and build customer trust.
Monitor Disputes in Real-Time
Use alerts to catch chargebacks before deadlines pass.
Use AI-Powered Defense
Automated tools analyze disputes and generate winning appeals.
Protect Your Business From Chargebacks
ChargebackAssistant uses AI to automatically analyze disputes, generate winning appeals, and keep your chargeback ratio low.
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