If you’re a shopper or business owner facing an unexpected transaction reversal, it’s likely a chargeback. What exactly is a chargeback? Basically, it’s a method of reversing a disputed transaction through your bank. While it’s intended to protect consumers from unauthorized charges, it can sometimes catch both customers and business owners off guard.
Understanding chargebacks gives you the confidence to handle them without hassle. That’s why we’ve created this guide at Remitly to explain what a chargeback is and how it works. We’ll also give you some tips on how to prevent them and avoid unnecessary headaches in the future.
What is a chargeback?
A chargeback is the reversal of a credit or debit card payment by your bank after you dispute a transaction.
Think of it like your bank acting as a referee. They step in to review the situation between you (the customer) and the business (the merchant) to decide if the money should be returned.
Chargebacks are designed to protect consumers when there’s a valid dispute. If approved, the bank refunds your money and collects it from the merchant.
Why do chargebacks happen?
Chargebacks can occur for many reasons. Below are some of the most common causes.
Fraudulent transactions
A fraudulent transaction happens when someone uses your credit or debit card without your permission. This could be someone making an online purchase, signing up for a subscription, or even booking travel or event tickets using your card. If you report the charge as soon as possible, your bank can reverse the payment and protect you from financial loss.
Service not received
If you paid for a product that never arrived or a service was never provided, you can file a chargeback. For example, you might have booked a photography session or hired a cleaning service, but the business cancels at the last minute or refuses to deliver. Filing a chargeback ensures you get your money back.
Product not as described
Chargebacks can also happen when the item you received isn’t what you expected. For example, you might order a new smartphone online but end up receiving a used or damaged one instead. If the product is wrong, faulty, or not as described, your bank can review the issue and return your money.
Refund not processed
If a merchant doesn’t process a refund you’re owed, you can file a chargeback. For example, if you return an item that doesn’t fit and the store never issued the refund, a chargeback can help you get your money back.
Incorrect amount charged
A charge may be higher or lower than expected due to manual entry errors or simple typos, such as entering an extra zero when taking an order over the phone. Chargebacks allow you to dispute the mistake and have the amount corrected.
Unrecognized charge
An unrecognized charge is when a transaction that you don’t recognize or remember appears on your statement. This often happens when a merchant’s name looks unfamiliar or you simply forgot the purchase.
For example, a streaming subscription might show up under the parent company’s name instead of the brand you know. If you dispute the charge, your bank can investigate and issue a chargeback if necessary.
Wrong currency charged
A merchant might accidentally charge your card in the wrong currency. For example, you might be billed in Australian dollars instead of US dollars, or a transaction you made while traveling may not match the currency you expected. A chargeback allows your bank to review the issue and correct the charge if needed.
Technical issues
In some cases, the issue isn’t with the merchant or the product but with the payment system itself. You might get charged twice for the same online order or see the wrong amount on your statement. A chargeback allows your bank to fix these errors so you only pay for what you actually purchased.
Chargebacks vs refunds: What’s the difference?
It’s easy to confuse chargebacks with refunds. Both return your money, but in fact they are quite different processes.
Here’s a simple table to break it down:
| Factor | Refund | Chargeback |
| Who starts it | The customer contacts the merchant directly | The customer contacts their bank to dispute the charge |
| Who is involved | Only the customer and merchant | The customer, merchant, and their banks |
| How long it takes | Usually processed within a few days | Can take weeks or even months to resolve |
| Impact | Little impact outside of the transaction—the merchant simply sends you the money | May lead to fees, penalties, or even reputation damage for the merchant |
When possible, it’s always best to contact the merchant first to request a refund. Most businesses want to keep their customers happy and will issue a refund quickly. This avoids the longer chargeback process and helps maintain a good relationship if you plan to shop there again.
For customers: how do you initiate a chargeback?
If you’re a customer with an unauthorized transaction and you need to request a chargeback, you’ll want to understand how the chargeback process works.
- The chargeback dispute: The process begins when you contact your bank to challenge a charge on your account. You’ll need to provide detailed information like receipts, emails, or screenshots to help your bank quickly understand the issue and start an investigation.
- Provisional credit: While your bank investigates, they may issue a temporary credit for the disputed amount. This means the money is returned to your account so you’re not left out of pocket while your bank checks the issue.
- The merchant is notified: Your bank informs the merchant’s bank about the dispute and temporarily withdraws the funds from the merchant’s account.
- The merchant responds: The merchant can either accept the chargeback or provide evidence to challenge it, a process known as representment. They might provide proof of delivery, signed receipts, or communication showing the service was rendered.
- The final decision: After reviewing all submitted evidence, your bank makes a final ruling. If the chargeback is approved, the temporary credit becomes permanent, and the merchant permanently loses the funds.
- Reversal of credit if denied: If the bank rules in favor of the merchant, the provisional credit is reversed, and the original charge stays on your account. Either way, the bank’s decision is based on evidence and ensures a fair outcome.
For merchants: tips to prevent chargebacks
As a business owner, chargebacks can harm your reputation and disrupt your business. Luckily, there are several proactive policies you can follow to help your customer service shine and reduce the likelihood of chargebacks.
Make terms and policies crystal clear
Be upfront about what customers can expect before they make a payment. Clearly display product prices, estimated shipping times, and any extra fees like taxes or delivery costs on your website or at checkout. Include easy-to-find links to your return, refund, and cancellation policies written in plain language.
Clearly communicate your refund policy: how long customers have to request a refund, what conditions apply, and whether any fees are charged. Making everything clear from the start reduces confusion, and customers are less likely to file a chargeback.
Deliver outstanding customer support
Respond quickly and helpfully when customers reach out with questions or complaints. Many chargebacks happen simply because someone couldn’t get a timely response. Proactively resolving small problems, like a missing item or a delay, can stop them from turning into disputes.
Make it easy for customers to contact you through multiple channels, such as live chat, phone, or email, so they always feel heard and supported.
Use secure payment methods and fraud prevention
Use secure payment methods with tools like 3D Secure, CVV checks, and two-factor authentication to make sure the cardholder is legitimate. These systems help confirm that the person making a purchase is the actual cardholder, reducing the risk of unauthorized use.
Update your fraud detection software regularly to keep up with evolving scams and new threats. The stronger your security setup, the fewer chargebacks you’ll face from fraudulent activity.
Keep an eye on high-risk transactions
Watch out for high-risk transactions, such as unusually large purchases, multiple orders in quick succession, or payments from new or international customers. Reviewing these transactions manually gives you a chance to verify their legitimacy before processing.
You can also use automated alerts or filters to flag suspicious activity early, helping you stop potential chargebacks before they occur.
Analyze chargeback patterns regularly
Keep track of which products, services, or transactions lead to the most chargebacks. Identifying recurring issues, like misleading product descriptions or delayed deliveries, helps you understand where improvements are needed.
Use these insights to fine-tune your policies and update product details. Sharing this data with your team ensures everyone works together to reduce future disputes and protect your business reputation.
Staying in control of your finances
A chargeback is a formal process between banks, making it more complex than a standard refund. It can occur for several reasons, including fraud, unrecognized charges, undelivered services, incorrect amounts, or technical errors. It should really be used as a last resort, because it can take some time to complete and may result in additional consequences for the merchant. As a customer, you can feel confident knowing that your bank will protect you from any unauthorized charges.
FAQs
How long do I have to file a chargeback?
The timeframe for filing a chargeback depends on your card network, such as Visa or Mastercard, and the reason for the dispute. Typically, you have between 60 and 120 days from the transaction date to initiate it. It’s best to contact your bank as soon as you notice an issue.
Can a business refuse a chargeback?
A business cannot refuse to participate in the chargeback process, but it can challenge the claim by providing evidence that the transaction was valid. The bank reviews both sides before making a final decision. If the merchant’s proof is valid, it may affect the outcome, so clear communication and documentation are essential on your end.
What happens if I lose a chargeback dispute?
If the bank decides in favor of the merchant, any temporary credit you received will be reversed, and the original charge will be reinstated on your account.
Can I file a chargeback for a digital product or subscription?
Yes, you can file chargebacks for digital goods or subscription services if you have a good reason to dispute the charge. You’ll probably need to provide evidence such as confirmation emails, receipts, or screenshots to support your claim.
Will filing too many chargebacks affect my credit score?
Filing chargebacks doesn’t directly affect your credit score, but frequent disputes can raise red flags with your bank. Repeated chargebacks might lead your bank to review or even restrict your account if they suspect misuse. Use chargebacks only when necessary and try to resolve issues with the merchant first.
Do chargebacks work internationally?
Yes, you can file chargebacks for international transactions as long as your card supports global payments. Processing may take longer because of currency conversions, different banking systems, or time zone differences. Even so, your customer rights remain protected, no matter where the merchant is based.