Official 2026 Chargeback FAQ

Table of Contents

1. What Is a Chargeback?
2. What Is Chargeback Fraud?
3. What Are Issuing and Acquiring Banks?
4. How Does a Chargeback Work?
5. What Is a Chargeback Fee?
6. Why Do Chargebacks Happen?
7. How Can Merchants Fight Chargebacks Effectively?
8. What Is a Chargeback Ratio?
9. Does a Chargeback Count Against Your Ratio if You Win the Dispute?
10. What Is a Chargeback Prevention Alert?
11. There's Always More to Learn About Chargebacks

Chargebacks continue to be a growing operational and financial challenge for merchants across nearly every industry. E-commerce merchants, subscription businesses, digital goods sellers, marketplaces, and high-ticket service providers all face elevated chargeback risk. Beyond the immediate loss of revenue, chargebacks carry downstream consequences that can threaten a merchant’s long-term ability to process payments.

Fortunately, there are a variety of tools and strategies merchants can employ to avoid this fate. But in order to figure out the right way to manage chargebacks, you must first understand them. For those who are taking the first steps on their journey to better chargeback management, we've created this article as a sort of beginner's guide to chargebacks, covering the basics along with some frequently asked questions.

Chargebacks are ordered by the bank that issued the customer’s payment card. Sometimes the bank will do this on their own when fraud or an error is discovered, but most often they occur because the cardholder has contacted the bank to dispute a transaction for some reason.

There are legitimate reasons a customer may file a chargeback. True fraud remains the primary example, such as when a payment card or account credentials are stolen and used without authorization. Billing errors, duplicate charges, and failure to receive goods or services can also qualify, depending on the circumstances.

In many non-fraud situations, however, the issue can and should be resolved by contacting the merchant directly for a refund, replacement, or clarification. Chargebacks are intended to be a last resort, but banks generally have limited visibility into whether the cardholder attempted to resolve the issue with the merchant first.

Chargeback fraud or friendly fraud can happen in one of two ways:

1. The cardholder does not recognize or remember a legitimate purchase and assumes fraud has occurred. This is common with digital subscriptions, in-app purchases, family member usage, or transactions that appear under a different merchant descriptor. 

2. The cardholder knowingly disputes a legitimate transaction. This may happen because the customer is dissatisfied, missed a return window, failed to read the terms of sale, or is attempting to obtain a refund without returning merchandise.

Unlike chargebacks due to true fraud, friendly fraud chargebacks are either mistakes better left to customer service or are outright fraud in and of themselves. 

Because of this fact, merchants have to regularly fight chargeback fraud, either by themselves or by employing a chargeback management service.

Chargebacks are managed through communication between these two banks using card network systems operated by Visa, Mastercard, American Express, and Discover. The issuing bank represents the cardholder’s interests, while the acquiring bank represents the merchant’s interests.

Although acquiring banks may provide guidance or automated tools, the responsibility for responding to chargebacks typically falls on the merchant.

While banks may occasionally decline to file a chargeback if the reason the customer gives is clearly illegitimate, they will usually err on the side of the customer if there's any room for interpretation.

When a chargeback is granted, the bank issues a provisional credit to the customer and contacts the merchant’s acquiring bank to notify them of the chargeback. The acquiring bank will then take the appropriate funds from the merchant's account. This includes the transaction amount, which is returned to the issuing bank, and the chargeback fee.

At this point, the merchant can either accept the chargeback or contest it by submitting evidence in a process called representment. The issuing bank reviews the evidence and determines whether the chargeback should stand or be reversed. If the merchant wins, the transaction amount is returned, but the chargeback fee is typically not refunded.

In some cases, disputes may escalate through pre-arbitration or arbitration stages, which involve additional fees and final decisions by the card network.

If the merchant accepts the chargeback, ignores it, or fails to contest it with the right evidence, the chargeback will be finalized and the provisional status of the credit issued to the customer will be lifted, fully reversing the transaction under dispute.

Chargeback fees are intended to cover chargeback-related costs accrued by the acquiring bank, and are one of the reasons why chargebacks cost merchants so much more than refunds.

When you add together the transaction amount, the lost merchandise, chargeback fees, and other hidden costs such as customer service, acquisition, and sales, many merchants find that chargebacks are often costing them more than twice the original transaction amount.

In e-commerce, chargebacks play an important role in giving customers confidence that they can shop online without worrying about being liable for thousands of dollars in credit card charges if their payment credentials are stolen.

Unfortunately, many customers abuse the chargeback process by disputing charges for problems that should be handled directly with the merchant. The banks are supposed to encourage customers to contact the merchant before disputing a transaction, but they have no way of verifying that the customer has actually done so.

Merchants should fight back against illegitimate chargebacks whenever possible. Chargebacks used for their intended purpose—as a remedy against fraud—can't be fought, but when customers dispute valid transactions in an attempt to avoid dealing with the merchant directly, that’s known as “friendly fraud” and merchants can and should contest these chargebacks.

If the bank reviews the evidence and finds that the transaction was processed and authorized properly, the money will be returned to the merchant’s bank account and the cardholder’s provisional credit will be revoked.

This is not necessarily the end of the chargeback process—banks, cardholders, and merchants can appeal to the card network for arbitration in the event of an unsatisfactory decision. This will incur more fees, and the card network’s decision will be final.

Most chargebacks shouldn’t be ambiguous, hard-to-decide cases. The right evidence should put an end to any illegitimate chargeback, and there is no evidence a merchant can present that will enable them to reverse a chargeback when true fraud occurred.

That said, our experience has shown us that there are some best practices merchants can follow to increase their chances of succeeding at representment.

• Be proactive. By monitoring your customer and purchase activity, you can see patterns emerging in terms of product returns, sales numbers, and issuer charges. This can help you identify transactions that have a higher likelihood of turning into chargebacks, and you can document and preserve evidence accordingly.
  
  
• Know your reason codes. Each chargeback notification will come to you with a reason code attached. These codes tell you exactly what type of chargeback you’re dealing with.
  
  
• Don’t submit extraneous evidence that won’t help your case. The bank employees who review representment aren’t going to spend hours playing detective over your claims—your argument against the chargeback must be concise, specific, and backed by the right evidence.
  
  
• Attentive, proactive customer service can be a great way to prevent chargebacks from happening in the first place—when a customer knows they can get help from the merchant when they’re dissatisfied with a purchase, they’re less likely to take the complaint straight to their bank. Additionally, emails and other customer correspondence can serve as evidence in your favor when customers engage in friendly fraud.

The penalties for an excessive chargeback ratio can include fines, higher fees, limitations placed on the merchant account, and even termination of that account entirely. Merchants whose accounts are terminated for this reason are added to an industry blacklist called the MATCH list.

Blacklisted merchants will only be able to sign on with the handful of payment processors that accept high-risk merchants, which charge higher fees and have other restrictions. In addition, it can take years of good behavior for a merchant to be removed from the MATCH list.

That’s because networks are not interested in the number of fraud cases you face (or friendly fraud cases you successfully dispute). Instead, they are interested in the measures you take to mitigate payment problems.

A high chargeback ratio could mean that you operate in a high-risk industry, or don’t adhere to best security and payments practices. The best ways to handle chargebacks, ultimately, are mitigation and prevention.

What Is a Chargeback Prevention Alert?

A chargeback prevention alert is a service provided by an alert network that notifies a merchant of a potential chargeback initiated by a customer. This alert will put a hold on the process and allow the merchant to preempt the chargeback by issuing a refund.

There's Always More to Learn About Chargebacks

Hopefully, this provides some grounding in the basics of chargebacks for perplexed merchants, but we know we haven’t answered all of your chargeback questions. Every chargeback tells a story, and sometimes those stories are strange and convoluted.

When you’re dealing with chargebacks that don’t fit the mold and you can’t figure out how to fight or prevent them, don’t be afraid to reach out to the experts.

Even merchants who have been in the e-commerce business for years sometimes get confused by new or complex chargeback scenarios. If you’ve got questions about chargebacks, you’re in good company—and we’ve got answers for you.