How Chargebacks Work
So, what is a chargeback in action? It’s basically a way for the customer to reverse a payment transaction through their bank. Let’s say someone sees a charge on their card they don’t recognize. They call their bank. If the bank finds the complaint valid, they take the money back from the merchant and return it to the cardholder.
The issuing bank contacts the payment processor, and the business is asked to prove the transaction was real. If they can’t provide enough information, the money stays with the customer.
Typical Process
Here’s how things usually go once a customer files a dispute — the steps are pretty standard across banks and processors.
- The customer reports a problem.
- The bank starts an investigation.
- The merchant provides evidence.
- A decision is made — money stays or goes.
This whole thing takes time, often weeks.
Chargeback vs Refund
So what’s the difference between a chargeback vs refund? A refund is handled by the merchant, often after the customer reaches out directly. No banks involved. It’s faster and cleaner for everyone.
A chargeback, however, skips talking to the business. The bank takes control, and the merchant is left covering both the funds and a fee. For the merchant, refunds are better — they keep the situation under control and avoid penalties.
Common Reasons for Chargebacks
There are two main causes: fraud and customer disputes.
Fraud and Unauthorised Transactions
If someone uses a stolen card or hacks into an account, the real owner will flag the transaction. That triggers the bank’s process.
There’s also chargeback fraud, also known as friendly fraud. That’s when a customer makes a real purchase but later claims it was unauthorised just to get a free product.
Customer Disputes
Sometimes the issue isn’t fraud — it’s disappointment. Maybe the product was broken, didn’t match the description, or never showed up. Maybe the billing was wrong. In these cases, customers might skip asking for help and just go to the bank.
Chargeback Fees and Business Impact
Each case can come with a significant chargeback fee, often between £/€/$10 and £/€/$50. That’s on top of the lost funds and valuable time invested.
Too many of these disputes can hurt a merchant’s reputation with banks and payment processors. They might even get dropped or blacklisted permanently. Some tools offer automated chargeback protection, but nothing beats clear communication, working checkout flows, and helpful customer support.
