A chargeback is a forced reversal of a card payment. The cardholder disputes a transaction with their bank, the bank takes the money back from the merchant’s acquirer, and the acquirer takes it from you, usually with a fee on top. You can fight it, but the money is gone from your account while you do.
This guide explains how chargebacks work step by step, why they happen, the reason codes Visa, Mastercard and American Express use, what compliance chargebacks are, and what a chargeback costs you beyond the transaction itself.
Key takeaways
- A chargeback is started by the cardholder’s bank (the issuer), not by you. A refund is started by you.
- Every chargeback carries a reason code. The code tells you what the cardholder claims and what evidence you need to fight it.
- Chargebacks fall into three groups: genuine fraud, friendly fraud (a real customer disputing a real purchase) and merchant error.
- A compliance chargeback is different: it is a dispute between banks about a card scheme rule that no reason code covers.
- Every chargeback counts towards your dispute ratio, even if you win it. Too many can lead to higher reserves, scheme monitoring under programmes such as Visa VAMP, or a closed account.
What is a chargeback?
A chargeback happens when a cardholder asks their bank to reverse a card payment instead of asking the merchant for a refund. The bank (the issuer) raises a dispute through the card scheme, the transaction amount is debited from the merchant’s acquirer, and the acquirer debits the merchant.
Chargebacks exist to protect cardholders from fraud and from merchants who don’t deliver. For merchants, the problem is that the process is largely in the cardholder’s favour, and a chargeback can arrive weeks or months after the sale.
Chargeback vs refund
| Refund | Chargeback | |
|---|---|---|
| Who starts it | You, the merchant | The cardholder’s bank |
| Fees | Usually none beyond lost processing fees | A chargeback fee from your acquirer, whatever the outcome |
| Counts towards your dispute ratio | No | Yes, even if you win |
| Can you contest it | Not applicable | Yes, with evidence |
That is why a fast refund is almost always cheaper than a chargeback.
How the chargeback process works
- The cardholder disputes the charge. They contact their bank and say the payment was fraudulent, the goods never arrived, the service was not as described, or something similar.
- The issuer raises the dispute. The bank checks the claim against the card scheme’s rules, assigns a reason code and sends the dispute through the scheme to your acquirer.
- Your acquirer debits you. The transaction amount, plus a chargeback fee, is taken from your balance or reserve, and you are notified with the reason code and a deadline.
- You accept or fight it. If you fight, you send evidence to your acquirer before the deadline. This step is called representment (Mastercard calls it second presentment).
- The issuer reviews your evidence. If it accepts your case, the money comes back to you. If not, it can take the dispute further.
- Pre-arbitration and arbitration. If the issuer and acquirer still disagree, the card scheme can be asked to decide. Arbitration carries extra fees for the losing side, so it is only worth it for strong cases and larger amounts.
Time limits vary by scheme and reason code. In most cases the cardholder has up to 120 days to dispute a transaction, and your acquirer will give you a much shorter window to respond, so check every notification for its deadline as soon as it arrives.
Why chargebacks happen
True fraud
A stolen card or card details are used to buy from you, and the real cardholder disputes the charge. 3D Secure and fraud screening are the main defences, and 3D Secure can shift liability for fraud chargebacks to the issuer.
Friendly fraud
A real customer disputes a purchase they made. Sometimes it is deliberate. More often the customer doesn’t recognise the name on their statement, forgot a subscription renewed, or a family member used the card. High-risk industries such as adult, dating and gaming see a lot of this, because customers are less likely to admit the purchase.
Merchant error
Double billing, charging the wrong amount, not processing a refund you promised, shipping late, or a recurring billing setup that makes cancelling hard. These chargebacks are the most preventable.
Chargeback reason codes
Each card scheme uses its own reason codes. The code matters because it decides what evidence can win the dispute. The tables below show common codes, not the full lists.
Visa
Visa groups its codes into four categories: fraud (10.x), authorisation (11.x), processing errors (12.x) and consumer disputes (13.x).
| Code | Meaning |
|---|---|
| 10.4 | Other fraud, card-absent environment |
| 10.5 | Visa Fraud Monitoring Program |
| 11.3 | No authorisation |
| 12.3 | Incorrect currency |
| 12.5 | Incorrect amount |
| 12.6.1 | Duplicate processing |
| 13.1 | Merchandise or services not received |
| 13.2 | Cancelled recurring transaction |
| 13.3 | Not as described or defective merchandise or services |
| 13.6 | Credit not processed |
| 13.7 | Cancelled merchandise or services |
Mastercard
| Code | Meaning |
|---|---|
| 4808 | Authorisation-related chargeback |
| 4834 | Point-of-interaction error (for example duplicate processing or incorrect amount) |
| 4837 | No cardholder authorisation |
| 4840 | Fraudulent processing of transactions |
| 4853 | Cardholder dispute (for example goods not received or not as described) |
| 4863 | Cardholder does not recognise, potential fraud |
American Express
| Code | Meaning |
|---|---|
| F24 | No card member authorisation |
| C08 | Goods or services not received or only partly received |
| C28 | Cancelled recurring billing |
| C31 | Goods or services not as described |
Your acquirer can tell you exactly which codes and evidence requirements apply to your disputes. For fraud codes on Visa, it is worth asking whether your disputes qualify for Compelling Evidence 3.0, which lets you use a customer’s earlier undisputed purchases as evidence.
What is a compliance chargeback?
A compliance chargeback, or compliance case, is a dispute between the issuer and the acquirer about a breach of card scheme rules that none of the normal reason codes covers. The cardholder does not start it, and it does not count as an extra chargeback in your ratio, although any original chargeback still does.
For a compliance case, one party must have broken the scheme’s rules, the breach must not be covered by a standard dispute condition, and the other party must have lost money because of it. Examples include charging a card again for a transaction already in dispute, processing payments through another merchant’s account, or ignoring a legal request for transaction records.
Pre-compliance is the step before the scheme gets involved. The bank that wants to raise the case must first contact the other bank and give it a chance to settle. If they can’t agree, the case goes to the card scheme, whose decision is final and comes with fees for the losing side. At Visa, these cases go through Visa Resolve Online (VROL). If your acquirer contacts you about a pre-compliance case, respond quickly: settling at this stage is usually much cheaper than a scheme ruling.
What a chargeback really costs
The transaction amount is only part of it. A chargeback can also cost you:
- The chargeback fee your acquirer charges for each dispute, whether you win or lose.
- The goods or service you already delivered, if you lose.
- The time spent gathering evidence and writing responses.
- Your dispute ratio. Every chargeback counts, even if you win. A high ratio leads to a higher rolling reserve, processing limits, or enrolment in card scheme monitoring under Visa VAMP and Mastercard’s equivalent programmes.
- Your merchant account. If the ratio stays high, your acquirer can close the account, and in serious cases add you to the MATCH list, which makes it much harder to get processing elsewhere.
How to respond to a chargeback
- Read the reason code. It decides what the issuer needs to see.
- Decide whether to fight. If the customer has a point, accept it and fix the cause. Fight when you have evidence that answers the claim.
- Collect evidence that matches the code. For “not received”, proof of delivery or access logs. For fraud, 3D Secure authentication, IP and device data, and the customer’s purchase history. For “cancelled recurring”, your terms, the customer’s agreement and your cancellation records.
- Write a short, clear response. State what was sold, when, and why the claim is wrong, then attach the evidence. Issuers read many of these, so make it easy.
- Meet the deadline. A late response is a lost dispute.
For more detail, read our guide on how to win more chargeback disputes.
How to prevent chargebacks
- Use a billing descriptor customers recognise, with your brand name and a support contact.
- Make refunds and cancellations easy, so customers come to you before their bank.
- Send reminders before subscription renewals and before trials convert to paid plans.
- Use 3D Secure and fraud screening on card-not-present payments.
- Use pre-dispute tools such as Visa’s Rapid Dispute Resolution and alert services from Verifi and Ethoca, which let you refund before a dispute becomes a chargeback.
- Keep records of every order, delivery, login and customer conversation.
Our full guide to preventing chargebacks goes through each of these, and we’ve compared chargeback protection services for high-risk businesses.
Frequently asked questions
What is a chargeback?
A chargeback is a reversal of a card payment started by the cardholder’s bank after the cardholder disputes the transaction. The amount is taken back from the merchant, usually with a chargeback fee.
What is the difference between a chargeback and a refund?
A refund is started by the merchant and does not count against them. A chargeback is started by the cardholder’s bank, carries a fee and counts towards the merchant’s dispute ratio, even if the merchant wins.
What is a compliance chargeback?
A compliance chargeback is a dispute between the issuing and acquiring banks about a card scheme rule breach that no standard reason code covers. The bank raising it must have lost money because of the breach, and the card scheme makes the final decision.
What is pre-compliance?
Pre-compliance is the step before a compliance case goes to the card scheme. The bank raising the case must first give the other bank a chance to settle. If they don’t agree, the case goes to the scheme for a ruling.
How long does a customer have to file a chargeback?
It depends on the card scheme and reason code, but in most cases the cardholder has up to 120 days from the transaction or the expected delivery date.
Can a merchant win a chargeback?
Yes. You can contest a chargeback by sending evidence through your acquirer before the deadline. If the issuer accepts it, the money is returned, but the chargeback still counts towards your dispute ratio.
What is a chargeback reason code?
A reason code is the code the card scheme uses to say why a transaction was disputed, for example Visa 13.1 for goods or services not received. It tells you what the cardholder claims and what evidence you need to respond.
Next step
Chargebacks are part of selling online, especially in high-risk industries. What matters is keeping them low and handling them well. Fasto works with adult, subscription, nutraceutical, gaming, dating and hospitality merchants who need an acquirer that understands their dispute profile. Approval typically takes two to three weeks.
Get a free quote, or read more about our high-risk merchant accounts.
