Why Chargebacks Happen
Online resellers can face chargebacks for several reasons, including:
Fraudulent Purchases Using Stolen Cards
An unauthorised person uses someone else’s credit card details to make a purchase.
When the actual cardholder notices the unauthorised charge, they report it to their bank, which reverses the transaction.
Customer Disputes
A legitimate buyer claims they didn’t authorise or recognise the transaction (sometimes called a “friendly fraud” scenario).
They tell their bank the charge was not legitimate, and the bank initiates a chargeback.
A customer claims they didn't receive the product or service they paid for
Customer Forgetfulness
Sometimes, a customer simply doesn’t recognise 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 by lodging a counter dispute. This involves the following;
Gathering Evidence
Proof of the transaction (invoice, receipt, tracking details, delivery confirmation).
Any correspondence with the customer proving they authorised and received the product or service.
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 favour 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