Chargebacks can be a frustrating and costly experience for businesses. Not only can they result in the loss of revenue, but they can also harm your reputation and impact your ability to process payments in the future.
If the issuer does not believe that the merchant's evidence disproves the cardholder's claim, the chargeback will stand. While merchants can appeal the case by requesting arbitration from the card network, it isn't usually a good idea to do so.
Chargebacks can be a significant burden for merchants as they result in financial losses, are time-consuming, increase costs, and increase the risk of fraud: Financial loss. A chargeback results in a direct financial loss for you, as you have to repay the disputed amount and a chargeback fee.
Merchants typically ban customers for disputes because they're likely to do it again. Studies suggest 90% of customers who file a chargeback will do another [2].
Chargeback fraud, in law, can sometimes be considered a form of payment card fraud or wire fraud. So can chargeback fraud result in jail time? Technically, yes, but usually only in extreme circumstances where it's used to steal very high values or volumes of products and services.
If the customer's chargeback is denied, the merchant will get the transaction amount refunded to their account. If the chargeback is approved, the customer gets the purchase amount refunded to them.
Loss of revenue: Chargebacks result in a direct loss of revenue for merchants, as they have to refund the disputed amount to the customer.
Credit and Debit Card Chargeback Reasons
Cardholder does not recognize the transaction. Cardholder did not authorize the charge (may be fraudulent). Processing errors were made during the transaction (e.g., duplicate Processing). The product or service was not received, or the quality was not as expected.
Merchants have a low overall success rate in winning chargebacks (around 30%). Friendly fraud (not actually fraud) makes up 75% of all chargeback cases. Fraudulent purchases are the most common reason behind chargebacks (34%).
Chargeback fees are charged by the business's “acquirer,” which is the financial institution working on behalf of the merchant. The merchant will have an account with this acquirer, which will accept payments for products and services.
Within 120 days of the last date, the cardholder expects to receive the goods or services (not to exceed 540 calendar days from transaction). Within 120 days of the date, the cardholder was informed that the goods/services would not be provided (not to exceed 540 calendar days from transaction).
Merchants win chargeback disputes approximately 20-30% of the time, though this success rate can vary widely based on factors such as the industry, the quality of the evidence presented, and the specific reason for the chargeback.
High-risk industries, particularly those where purchases are made without physical cards—like online retail, digital goods, and travel services—often experience elevated chargeback rates.
The industry average for chargeback win rates is 30%.
Another source suggests that merchants win 43.82% of all friendly fraud cases [2]. However, merchants only won 9.27% of true fraud chargebacks. The former is when the actual cardholder makes a purchase using the card, but claims the transaction was fraud.
Disputing a credit card charge does not hurt your credit. However, if the information on your credit report changes because of the dispute, your score may change accordingly. Credit agencies can also note the dispute by placing the “XB” code on your account, which simply means the dispute is under investigation.
Disputing chargebacks that are high-value transactions can help you recover substantial revenue. Let's take a $500 order disputed as fraudulent, this alone is worth the effort because of the substantial revenue that can be recovered.
Most Common Reason for Disputes
Four different categories are used to classify chargebacks. These categories vary slightly based on the card brand but can generally be thought of as fraud, cardholder disputes, authorization issues, and processing errors.
Although chargeback fraud is illegal, it's unlikely that you'll be held criminally responsible or face jail time for the crime. You may expose yourself to legal action, however, if the fraud is pervasive or if it involves significant dollar amounts.
Winning chargeback disputes is a challenge for merchants, with success rates typically hovering around 20-40%, depending on the industry and the quality of the evidence provided.
How do banks investigate charges? Banks hire full-time fraud professionals to investigate suspicious, unusual, and unauthorized transaction activity. These specialists analyze transaction data, monitor rules-based fraud detection information, and respond to fraud tips or disputes submitted by cardholders.
Paying the chargeback fee to the card processor. Even if the merchant files a chargeback dispute and the issuer decides not to grant the customer a chargeback, the merchant is still obligated to pay this fee.
While there isn't a guarantee to win a chargeback dispute as a seller even if you are in full rights, there are some steps that you can take to increase your chances significantly.
Is a chargeback bad? Chargebacks are not good for any merchant. They come with a series of negative consequences, including lost revenue, lost products and dispute charges. If merchants experience too many chargebacks, there is even the potential for their merchant account to be shut down.
To win a chargeback dispute as a merchant, you must have evidence that is compelling enough to persuade the cardholder's bank to reevaluate the case. Depending on the reason for the chargeback, your evidence needs to prove you: verified the identity of the shopper. processed the transaction correctly.