By alphacardprocess July 20, 2025
A chargeback occurs when a customer contests a card payment, and their bank reverses the purchase and refunds the money. Although it is intended to shield consumers from fraud or errors in billing, chargebacks also produce financial and operational difficulties for merchants. Merchants can control more disputes and minimize expensive reversals by knowing how chargebacks function and why they take place.
Understanding Chargebacks: What They Are and How They Work
A chargeback is when money from a successful debit or credit card transaction is reversed. In most cases, it starts when a cardholder is dissatisfied with a service and complains to the card issuer or bank, and requests the transaction to be reversed. While it’s much less frequent, companies can also request chargebacks under specific conditions, like if there’s proof that a processing mistake has been made.
Chargebacks are usually motivated by customers who see unknown charges, are victims of fraud, or believe that the goods or services they bought weren’t delivered according to the agreement. After a chargeback request has been made, the bank examines the claim and, if valid, credits the disputed amount back to the cardholder.
Chargebacks vs Refund
Although chargebacks and refunds both end with the customer receiving their money back, the big distinction comes down to who is starting and leading the process. A refund is usually dealt with directly between the customer and the business, the customer asks for it, and the business tells its payment processor to send the money back. A chargeback, in contrast, initiates when the customer’s bank or card company receives a complaint from the customer about a charge, which then initiates, draws the money out of the business account, and holds it until the matter is resolved.
Chargebacks are prompted by the issuing bank, which coordinates communication with the customer and the business, whereas refunds are processed by the business directly. Timing is also different: after approval, a refund generally reaches the customer between three and seven working days, whereas a chargeback process may take several weeks to months, especially if the business contests the dispute.
Types of Chargebacks: Common Causes
In order to properly minimize the amount of chargebacks your business receives, it’s important to have knowledge of what causes them. Fundamentally, chargebacks exist to shield consumers from valid fraud, i.e., unauthorized transactions done by a party other than the cardholder. There is also friendly fraud, which includes cases of customers unintentionally using the chargeback process.
For example, a consumer may request a chargeback for an unfamiliar charge on their account, perhaps because it was billed under an alternate business name, they had simply forgotten about a purchase, or they had simply missed a subscription payment. Merchant fraud like delivery problems also bring conflicts if products are late to arrive, lost in transit, or if clients cannot trace their order easily or contact your company. Some clients even initiate chargebacks to avoid what they consider a complicated and rigid returns policy, particularly when they’re out of time for a return or frustrated with complex policy.
These situations are more frequent whenever customer service is poor or delayed, causing customers to bypass direct resolution and require their bank to intervene. Recognizing these tendencies, companies can rework processes, increase transparency, and speak with customers more effectively in order to maintain low chargeback rates.
The Cost of Chargeback for Businesses
The expense of processing chargebacks isn’t confined to the amount of the dispute. Most payment processors add additional fees whenever a chargeback takes place, whether it is linked to a credit or debit card.
The charges differ based on the provider. For instance, many processors now charges approximately US$15 per chargeback dispute, while other processors can charge up to US$50 or even more per case.
While the best situation is to have as few disputes as possible through effective fraud prevention and good communication, occasional disputes are virtually inevitable. This is why card-accepting businesses need to examine their processor’s chargeback fee policy upfront so they are ready if a dispute does arise.
How to Prevent Chargebacks Before They Happen
Merchants can reduce the chances of chargebacks by acting on typical causes proactively. The use of fraud prevention tools such as Address Verification Service (AVS), Card Verification Value (CVV) verification, and 3-D Secure authentication creates layers of payment and credit card security, making it more difficult for stolen card details to be used by fraudsters. Customer service also plays a strong role.
Prompt feedback and the provision of phone, email, and live chat facilities facilitate good customer support before customers have to dispute charges. Clear refund policies can also minimize disputes. It’s similarly useful to have easy-to-understand policies and easily identifiable billing descriptors so customers aren’t blindsided by charges on their statements. Lastly, regular monitoring of chargeback information identifies repeat problems associated with products, fulfillment errors, or confusing descriptions so that companies can fix issues early.
How to Handle Chargebacks If They Occur
Even with good prevention measures, chargebacks can happen anyway, so it’s good to have a response system. If you’re informed of a chargeback, first check to see if it represents actual fraud or a customer-service problem. If your investigation reveals true fraud, it’s best just to accept the chargeback, notify the customer’s bank that you won’t be disputing it, and notify your payment processor to screen for other related fraud. If it seems to be friendly fraud, contact the customer to determine why they initiated the dispute.
Issuing a refund when warranted can most often prevent a formal chargeback. If the customer contact fails to resolve it and you feel that the charge is legitimate, compile evidence such as receipts, shipping information, and transaction history in support of your position. Your payment processor will then submit this to the issuing bank, which determines whether the chargeback prevails or gets reversed. Having a formal response process facilitates faster processes in the right way for whatever the dispute is.
Debit Card Chargebacks vs. Credit Card Chargebacks
Although debit and credit cards both allow consumers to contest transactions, there are important distinctions. With credit card fraud, the money in dispute technically still belongs to the bank, so banks have an even greater incentive to get it back. Debit card money is withdrawn directly from the cardholder’s account, so disputes are more personal. American law also imposes varying liability costs, with credit cards, it is limited to $50, but with debit cards, it is up to $500, depending on how quickly fraud is reported. This implies that while the process is the same, urgency and protection level differ.
How Fraud is a Rising Challenge for Most Businesses
True fraud continues to be a major issue. In the U.S., fraud related losses reached $5.8 billion in 2021, and true fraud is a significant contributor to such losses. True fraud accounts for an estimated 20–40% of chargebacks, according to a PYMNTS study. The National Retail Federation discovered true fraud to be the second-largest threats to profit backed 40% of retailers indicating it’s a critical concern to be addressed. Reports by Experian also indicate a rise of almost 70% in true fraud cases since 2015, and a nearly 19% rise in U.S. identity theft cases by 2019 alone. These figures indicate just how widespread and rapidly growing the issue is and how critical it is to address such issues.
Chargeback Reason Codes
1. Discover
Category | Code | Description |
Service Dispute | 5 | Good Faith Investigation Chargeback |
AA | Does Not Recognize | |
AP | Recurring Payments | |
AW | Altered Amount | |
CD | Credit / Debit Posted Incorrectly | |
DP | Duplicate Processing | |
NF | Non-Receipt of Cash from an ATM | |
PM | Paid by Other Means | |
RG | Non-Receipt of Goods, Services, or Cash | |
RM | Cardholder Disputes the Quality of Goods or Services | |
RN2 | Credit Not Processed | |
Fraud | UA01 | Fraud: Card Present Transaction |
UA02 | Fraud: Card Not Present Transaction | |
UA05 | Fraud: Chip Card Counterfeit Transaction | |
UA06 | Fraud: Chip and PIN Transaction | |
Processing Error | AT | Authorization Noncompliance |
IN | Invalid Card Number | |
LP | Late Presentation |
2. American Express
Category | Code | Description |
Cardmember Disputes | C02 | Credit Not Processed |
C04 | Goods / Services Returned or Refused | |
C05 | Goods / Services Cancelled | |
C08 | Goods / Services Not Received | |
C14 | Paid By Other Means | |
C18 | “No Show” or CARDeposit Cancelled | |
C28 | Cancelled Recurring Billing | |
C31 | Goods / Services Not As Described | |
C32 | Goods / Services Damaged Or Defective | |
Authorization | A01 | Charge Amount Exceeds Authorization Amount |
A02 | No Valid Authorization | |
A08 | Authorization Approval Expired | |
Fraud | F10 | Missing Imprint |
F24 | No Cardmember Authorization | |
F29 | Card Not Present | |
F30 | EMV Counterfeit | |
F31 | EMV Lost / Stolen / Non-Received | |
Processing Error | P01 | Unassigned Card Number |
P03 | Credit Processed as Charge | |
P04 | Charge Processed As Credit | |
P05 | Incorrect Charge Amount | |
P07 | Late Submission | |
P08 | Duplicate Charge | |
P22 | Non-Matching Card Number | |
P23 | Currency Discrepancy | |
Inquiry / Miscellaneous | M01 | Chargeback Authorization |
R03 | Insufficient Reply | |
R13 | No Reply |
3. Mastercard
Category | Code | Description |
Fraud | 4837 | No Cardholder Authorization |
4840 | Fraudulent Processing Of Transactions | |
4849 | Questionable Merchant Activity – GMAP / Rule 3.7 Violation / QMAP | |
4863 | Cardholder Does Not Recognize, Potential Fraud | |
4870 | EMV Chip Liability Shift | |
4871 | Chip Liability Shift – Lost / Stolen / Never Received Fraud | |
Authorization | 4807 | Warning Bulletin |
4808 | Authorization Chargeback – multiple variants (e.g., CAT 3 Device) | |
4812 | Account Number Not On File | |
Cardholder Dispute | 4853 | Multiple subcodes: Counterfeit Goods, Credit Not Processed, Goods Not Provided, etc. |
4855 | Goods or Services Not Provided | |
4859 | Addendum, No-Show, or ATM Dispute | |
4860 | Credit Not Processed | |
Point of Interaction Error | 4831 | Incorrect Transaction Amount |
4834 | POI Error – various (Unreasonable Amount, ATM, Late Presentment, etc.) | |
4841 | Canceled Recurring or Digital Goods Transactions | |
4842 | Late Presentment | |
4846 | Currency Errors |
4.Visa
Category | Code | Description |
Fraud | 10.1 | EMV Liability Shift Counterfeit Fraud |
10.2 | EMV Liability Shift Non-Counterfeit Fraud | |
10.3 | Other Fraud, Card-Present Environment | |
10.4 | Other Fraud, Card-Absent Environment | |
10.5 | Visa Fraud Monitoring Program | |
Authorization | 11.1 | Card Recovery Bulletin |
11.2 | Declined Authorization | |
11.3 | No Authorization | |
Processing Errors | 12.1 | Late Presentment |
12.2 | Incorrect Transaction Code | |
12.3 | Incorrect Currency | |
12.4 | Incorrect Account Number | |
12.5 | Incorrect Amount | |
12.6 | Duplicate Processing / Paid By Other Means | |
12.7 | Invalid Data | |
Consumer Disputes | 13.1 | Merchandise / Services Not Received |
13.2 | Cancelled Recurring Transaction | |
13.3 | Not As Described Or Defective Merchandise / Services | |
13.4 | Counterfeit Merchandise | |
13.5 | Misrepresentation | |
13.6 | Credit Not Processed | |
13.7 | Cancelled Merchandise / Services | |
13.8 | Original Credit Transaction Not Accepted | |
13.9 | Non-Receipt of Cash or Load Transaction Value |
Chargebacks: Reducing Strategies for High-Risk Merchants
Prevention of chargebacks for high risk merchants starts fraud prevention, transparent communication, and responsive customer service. Clear product descriptions and transparent terms establish proper expectations, while familiar billing descriptors minimize confusion. Fraud prevention techniques such as AI monitoring, address verification, and 3-D Secure authentication deter unauthorized transactions.
Continuous examination of chargeback data prevents matters from arising early. Well trained staff who manage friendly fraud and customer complaints can address issues before these grow more complicated. Transparent, equitable refund policies and proactive communications, such as order status updates, create trust. Prompt, supportive service makes clients happy and minimizes chargebacks.
The Role of Technology In Chargeback Solutions
High-risk merchants can reduce chargebacks by implementing specialized software and AI solutions. Chargeback management software alerts merchants when disputes occur so they can act quickly. Anti-fraud platforms can analyze risks of transactions in real time and stop questionable purchases. Integration with payment systems ensures ongoing monitoring, while cybersecurity measures protect data. AI also analyzes transaction patterns to find anomalies, uses biometrics for verification, and predicts new fraud trends so businesses can adjust quickly. AI’s real-time data analysis helps block fraud early, lowering chargeback risk and protecting revenue.
Role of Payment Processing in Reducing Chargebacks
Payment processing is central to preventing chargebacks. Payment gateways reduce risk by introducing anti-fraud tools such as encryption, address verification, and CVV checks. Other gateways also trigger alerts for potential fraud, enabling a quick response. Selecting a trustworthy payment processor guarantees accurate settlements, transparent fees, and good support. Processors also liaise with acquiring banks to catch errors and maintain issuing bank relationships to ensure payments go smoothly. In combination, fraud solutions and considered processor choice assist companies in safeguarding income and preserving customer confidence.
Conclusion
Chargebacks are a valuable consumer protection, but they can also pose substantial expense and operational challenges to businesses. By learning how chargebacks function, why they occur, and the significant distinctions from refunds, merchants can develop more effective prevention measures and react more securely when issues occur. The integration of fraud prevention solutions, open communication, and outstanding customer service reduces the risks of chargebacks, retains revenue, and preserves customer confidence in the long term.
FAQs
What is a chargeback?
A chargeback occurs when a bank reverses a card payment following a dispute from the customer on the charge, taking the money from the business.
How long does a chargeback take?
It can take from a few weeks to several months, particularly if the business disputes the claim
How is a refund different from a chargeback?
Refunds are requested by the company, and chargebacks are requested by the customer, but through their bank.
Why do chargebacks occur?
They usually occur because of fraud, customer complaints, delivery problems, or clerical mistakes, such as billing twice.
Can companies dispute chargebacks?
Yes, by submitting evidence such as receipts or confirmation of delivery to show the transaction was valid.