Why Chargebacks Happen
Online resellers can face chargebacks for several reasons, including:
Fraudulent Purchases Using Stolen Cards
A criminal uses someone else’s stolen credit card details to make a purchase.
When the actual cardholder notices the unauthorized charge, they report it to their bank, which reverses the transaction.
Customer Disputes
A legitimate buyer claims they didn’t authorize or recognize the transaction (sometimes called a “friendly fraud” scenario).
They tell their bank the charge was not legitimate, and the bank initiates a chargeback.
Customer Forgetfulness
Sometimes, a customer simply doesn’t recognize the transaction on their statement (e.g., your business name appears differently on their bill).
They mistakenly dispute the charge, triggering the chargeback process.
The Chargeback Response Process
When a chargeback is issued, the reseller must respond to the bank (via their payment processor) to contest it. This process is often called representment and includes:
Gathering Evidence
Proof of the transaction (invoice, receipt, tracking details, delivery confirmation).
Any correspondence with the customer proving they authorized and received the product.
Submitting Paperwork
The evidence must be compiled into the bank’s required format and submitted within strict deadlines.
This can involve filling out detailed forms and attaching supporting documents.
Waiting for the Bank’s Decision
Even with strong evidence, there’s no guarantee the bank will side with the merchant.
Banks typically favor the cardholder unless the evidence is very compelling.
Associated Fees & Costs
Per-Chargeback Fee – Banks (or payment processors) typically charge a non-refundable fee for each chargeback, often ranging from $15–$50, regardless of outcome.
Administrative Burden – Time spent gathering paperwork, filling forms, and responding to deadlines.
Loss of Funds – If you lose the dispute, you not only forfeit the sale amount but also absorb the cost of the product and shipping.
Impact on Merchant Security Score
Payment processors and card networks track a merchant’s chargeback ratio (number of chargebacks vs. total transactions).
A high chargeback rate can lead to:
Higher processing fees
Withheld funds (rolling reserves)
Even termination of your merchant account