All About Chargebacks

If a customer presents his bank with a valid reason that he shouldn’t have been billed for a particular charge, the bank can issue a chargeback against the merchant. This chargeback retrieves the purchasing funds from the merchant and returns them to the customer’s account. There are several steps in this confusing process, all laid out for you here!

Banks can issue chargebacks against merchants to get money back into the customer's account.

Chargeback Timing

First, a word about timing: a cardholder generally has up to six months to dispute a charge on his or her card. Once initiated, the dispute may not reach the merchant for another several weeks after that. It’s typical to see fraud chargebacks roll in two to three months after the initial charges took place.


Not all card associations (that is, the companies who own the card brands such as Visa, MasterCard, American Express, and Discover) issue retrievals, and they aren’t issued for every chargeback. However, if a bank does levy a chargeback, it comes in the form of a request for information. The merchant has the opportunity to argue the validity of a chargeback and provide information supporting that assertion. The card association passes this information back to the issuing bank, and that may be the end of it! However, if the issuing bank presses the issue (or if there was no retrieval request in the first place), the bank then charges the disputed transaction back against the merchant’s account.

The merchant can dispute a retrieval by providing evidence to back their claim to the card association, who would then pass it to the issuing bank.


When a transaction is charged back, the acquiring bank (via the card association) retrieves the money from the merchant’s account, and tacks a chargeback fee on top; not only does the merchant lose his sale and his merchandise, he also suffers a fee. A reason code, specific to the card type, accompanies each chargeback, indicating why the cardholder is entitled to a refund. A merchant can refute these reasons, using specific evidence outlined by the card association’s policies. Generally, if the chargeback is for merchandise not received, showing proof of delivery may help to refute the request (with varying levels of proof depending on the card type and the transaction amount).

When the chargeback goes through, money is taken out of the merchant's bank along with a chargeback fee.

If the chargeback is due to fraud or because the cardholder did not recognize the charge, proving a merchant’s legitimacy may get a little fuzzier. Showing that the merchant shipped physical merchandise to the cardholder’s address, with a positive response, is acceptable proof. Additionally, it is possible to clarify the issue by providing supporting information proving that the cardholder did in fact make the purchase. The standards here are less cleanly defined, but details like account history or shipping address verification can support successful chargeback disputes. Unfortunately, a successfully reversed chargeback will not reverse the attached fee.


If both the merchant’s acquiring bank and card association approve the chargeback dispute request, the issuing bank will lose the money from their account again. At this point, the issuing bank may press for arbitration with the card association. If the card association approves arbitration and decides in favor of the issuing bank, the merchant once again loses the money, and is charged an additional fee. The arbitration fee can be hundreds of dollars, and the merchant has no additional opportunity to fight back; there is no further recourse for the merchant through the chargeback process.

Fees, Fines, and Worse

As outlined above, a chargeback fee accompanies every chargeback, and this fee remains even if the merchant is able to get the chargeback itself reversed. Additionally, Visa and MasterCard have special programs for merchants who experience an excessive amount of chargebacks. These programs come with increased fees and potentially steep fines, totaling in thousands or even tens of thousands of dollars every month.

Finally, if a merchant continues to experience a high frequency of chargebacks, the card associations (Visa, MasterCard, American Express) may revoke that merchant’s ability to process payments using that card type.