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Merchant services glossary

Chargeback

Also called: Dispute, Reversal

Quick definition: A reversal of a card payment initiated by the cardholder's bank, usually because of fraud, dispute, or non-delivery. The merchant loses the sale, pays a fee ($15-100), and risks account termination if chargebacks exceed 1%.

✓Editorially reviewedReviewed by Sam Patel, Merchant services editorUpdated April 1, 2026How we make moneyMethodologyAdvertiser disclosure

In plain English

Unlike a refund (which you control), a chargeback is filed with the cardholder's bank. The bank pulls the funds from your merchant account first and asks questions later. You have 7-30 days to submit evidence ("representment") to dispute it.

Chargebacks fall into three reason-code families: fraud (card stolen), authorization/processing errors, and customer disputes (didn't receive item, item not as described). Customer-dispute chargebacks are the most preventable.

Example

A customer claims they never received their $200 order. Their bank initiates a chargeback. You're charged $25 immediately and lose the $200. You submit shipping proof and a delivery signature; the bank rules in your favor and returns $200 — but the $25 fee stays.

Why it matters for your bill

Beyond the lost revenue and fees, chargebacks count toward your chargeback ratio. Cross 1% and you're flagged; cross 1.5% and your account can be moved to a high-risk processor at 3-5x the rate, or terminated entirely.

FAQ

Use clear billing descriptors, send shipping confirmations with tracking, require signature on high-ticket orders, and respond to customer service complaints fast.
How we research & score
  • •Definitions reviewed against current card-network and PCI SSC documentation.
  • •Updated when card-network rules or fee structures change.
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