Overview

A chargeback occurs when a cardholder disputes a transaction with their bank instead of requesting a refund directly from the merchant. If the bank determines the dispute is valid, the transaction amount is reversed and returned to the cardholder.

Chargebacks are an important part of the card payment system designed to protect consumers from fraud, billing errors, and unresolved merchant disputes. However, they can also impact merchants by creating operational costs, lost revenue, and potential risk monitoring from card networks.

Understanding how chargebacks work helps merchants reduce disputes, protect revenue, and maintain healthy payment processing relationships.

Table of Contents

1. Why Chargebacks Matter
2. What is a Chargeback?
3. Types of Chargebacks
   • True Fraud
   • Friendly Fraud
4. Common Reasons for Chargebacks
5. Prevention and Best Practices
6. Chargeback Lifecycle
   • Chargeback Lifecycle Stages
   • Chargeback Lifecycle Diagram
   • Visa Dispute Models
7. Responding to Chargebacks

Why Chargebacks Matter

Chargebacks can affect a merchant’s payment processing relationship if they occur too frequently. High chargeback levels may lead to:

• Increased processing fees
• Card network monitoring programs
• Account restrictions
• Merchant account termination in severe cases

Because of this, merchants should actively monitor disputes and implement best practices to reduce chargeback risk.

What is a Chargeback?

A chargeback occurs when a cardholder disputes a transaction with their issuing bank, resulting in the bank refunding the transaction amount to the cardholder. This typically happens when the cardholder claims the transaction was unauthorized, fraudulent, or the product/service was unsatisfactory.

Chargebacks are also commonly referred to as:

• Disputes
• Disputed Transactions
• Payment Reversals
• Cardholder Disputes
• Charge Disputes

Regardless of the term, they all indicate that the transaction has been reversed by the cardholder’s bank and requires review or action by the merchant.

Types of Chargebacks

Chargebacks generally fall into two categories depending on the nature of the dispute.

True Fraud

True fraud occurs when a payment is made using stolen card information without the cardholder’s authorization. Examples include:

• Identity theft
• Stolen credit card numbers
• Card skimming
• Lost or stolen cards being used

These disputes are typically categorized as fraud chargebacks by card networks. Fraud disputes often follow automated liability rules depending on whether security measures such as EMV chips or 3-D Secure authentication were used.

Friendly Fraud

Friendly fraud occurs when a legitimate cardholder disputes a valid transaction. This can happen intentionally or unintentionally. Common examples include:

• The cardholder does not recognize the business name on their statement
• A family member made the purchase
• The customer forgot about the purchase
• The customer disputes the charge instead of requesting a refund

Friendly fraud is one of the most common causes of chargebacks for merchants.

Common Reasons for Chargebacks

Chargebacks can occur for several reasons.

For guidance on what documentation is most effective based on the chargeback reason code, see Chargeback Reason Codes & Recommendations. 

Prevention and Best Practices

Merchants can reduce chargebacks by implementing the following best practices:

• Use AVS (Address Verification System) and CVV verification for card-not-present transactions.
• Maintain a clear billing descriptor, ideally including your business or DBA name.
• Display transparent refund and return policies on your website or receipts.
• Provide responsive customer service so customers contact you before disputing a charge.
• Keep organized transaction records, including receipts, invoices, and proof of delivery.

These steps can help reduce disputes and strengthen a merchant’s ability to respond effectively if a chargeback occurs.

Chargeback Lifecycle

Chargebacks follow a structured dispute process involving the cardholder, issuing bank, merchant, acquiring bank, and card network. The process typically progresses through several stages before a final decision is reached.

Chargeback Lifecycle Stages

Chargeback Lifecycle Diagram

Visa Dispute Models

Visa uses two dispute workflows within its Visa Claims Resolution (VCR) system.

These models determine how disputes move through the chargeback lifecycle.

Responding to Chargebacks

If you are using clover, please see AccessOne & Commerce Control: Merchant and Partner Guide. For all other merchants, see How to Respond to a Chargeback.

For guidance on what documentation is most effective based on the chargeback reason code, see Chargeback Reason Codes & Recommendations.