Chargeback
A transaction reversal initiated by a cardholder's bank. The merchant loses the sale amount, pays a penalty fee, and must prove the transaction was legitimate.
A chargeback occurs when a cardholder disputes a transaction with their bank. The issuing bank reverses the funds from your account and you receive a chargeback notification with a deadline to respond. If you cannot provide compelling evidence (signed receipt, delivery confirmation, cardholder communication), you lose both the sale amount and the chargeback fee, typically $15–$35 per incident.
Chargebacks are initiated for various reasons: the cardholder doesn't recognize the charge (often friendly fraud), the goods weren't delivered, the item wasn't as described, or the transaction was genuinely unauthorized. Banks tend to side with cardholders, so your representment evidence needs to be thorough.
Processors monitor chargeback ratios closely. Visa's threshold is 0.9% of monthly transactions; Mastercard's is 1.5%. Merchants who exceed these thresholds are placed in monitoring programs with elevated fees and risk of account termination. High-risk industries (travel, subscription, MOTO) tend to have higher baseline chargeback rates.
Prevention is cheaper than defense: clear billing descriptors that match your business name, prompt refunds for legitimate complaints, delivery confirmation for shipped goods, and 3D Secure for card-not-present transactions all reduce chargeback rates.
Track your monthly chargeback count as a percentage of transactions. Above 0.5% is a yellow flag. Above 1% puts your processing account at risk.
See how your effective rate compares to what competitive IC+ pricing would cost you.
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