What is Chargeback? Chargeback Types Explained

Introduction

Credit card chargebacks are a critical consumer protection feature, but they can be costly for businesses. Whether you’re a merchant trying to reduce disputes or a cardholder disputing an unfair charge, understanding chargebacks is essential.

In this guide, we’ll explain:
✔ What a chargeback is
✔ How the chargeback process works
✔ Different types of chargebacks (with examples)
✔ How to prevent or fight chargebacks effectively

By the end, you’ll know how to handle chargebacks—whether you’re a business owner or a consumer.

What Is a Chargeback?

A chargeback is a transaction reversal initiated by a cardholder’s bank, forcing a refund when a customer disputes a credit card charge. Unlike a regular refund (where the merchant agrees to return the money), a chargeback is a bank-enforced process that can lead to fees, penalties, and even merchant account termination if disputes occur too often.

How Do Chargebacks Work?

1. Customer Files a Dispute – The cardholder contacts their bank to challenge a charge.

2. Bank Investigates – The issuer reviews the claim and may issue a temporary refund.

3. Merchant is Notified – The business receives a chargeback notice and can either accept it or fight it with evidence.

4. Final Decision – The bank reviews all proof and either approves or denies the chargeback.

Chargebacks were designed to protect consumers from fraud, but they can also be abused (known as "friendly fraud").

Types of Chargebacks (Most Common Reasons)

Chargebacks fall into several categories based on their cause. Here are the most frequent types:

1. Fraudulent Transactions (Unauthorized Charges)

• Reason: The cardholder did not authorize the purchase (e.g., stolen card, identity theft).

• Example: A customer sees a $500 charge from an online store they never used.

2. Product or Service Not Received

• Reason: The customer paid but never got what they ordered.

• Example: An Amazon package marked "delivered" never arrives.

3. Item Not as Described (Defective or Wrong Product)

• Reason: The product was damaged, counterfeit, or didn’t match the listing.

• Example: A shopper buys "100% leather shoes" but receives synthetic material.

4. Duplicate or Incorrect Charges

• Reason: The merchant charged the customer twice or entered the wrong amount.

• Example: A restaurant bills a customer’s card twice for the same meal.

5. Subscription & Recurring Billing Issues

• Reason: The customer canceled a subscription but keeps getting billed.

• Example: A gym continues charging a member after cancellation.

6. Processing Errors (Bank Mistakes)

• Reason: A technical glitch or human error caused an incorrect charge.

• Example: A $10 purchase is accidentally processed as $100.

7. Friendly Fraud (False Disputes)

• Reason: The customer disputes a valid charge (intentionally or accidentally).

• Example: A buyer regrets a purchase and files a chargeback instead of requesting a refund.

How to Prevent Chargebacks (For Merchants)

Too many chargebacks can hurt your business. Here’s how to reduce them:

✅ Clear Descriptions & Policies – Ensure product details, return policies, and terms are transparent.
✅ Strong Fraud Prevention – Use AVS (Address Verification System), CVV checks, and 3D Secure.
✅ Fast Customer Support – Resolve complaints before they escalate to chargebacks.
✅ Shipping Notifications – Send tracking info to prove delivery.
✅ Keep Records – Save invoices, receipts, and communication logs for disputes.

How to Dispute a Chargeback (For Consumers)

If you’re a cardholder, follow these steps before filing a chargeback:

1. Contact the Merchant First – Many disputes can be resolved with a simple refund.

2. Check Your Bank’s Policy – Each issuer (Visa, Mastercard, Amex) has different dispute rules.

3. Gather Evidence – Save receipts, emails, and screenshots to support your claim.

4. File a Dispute Within the Deadline – Most banks require disputes within 60-120 days.

Final Thoughts

Chargebacks protect consumers from fraud, but they can also harm businesses if misused. By understanding the different types of chargebacks and how to prevent them, both merchants and customers can navigate disputes more effectively.

Need help with chargebacks? Whether you’re a business owner fighting disputes or a consumer seeking a refund, knowing your rights and responsibilities is key!

🔹 Merchants: Use fraud detection tools and clear policies to minimize disputes.
🔹 Cardholders: Always try resolving issues with the merchant first before filing a chargeback.

s and maintain trust in online transactions.