Disputes
Chargeback
A forced reversal of a card payment initiated by the cardholder's issuing bank.
A chargeback is a formal dispute mechanism governed by card scheme rules, such as those from Visa and Mastercard, which allows a cardholder to reclaim funds directly from their issuing bank. Once a dispute is filed, the issuer typically reverses the transaction amount immediately, debiting the merchant via their acquirer and applying an additional administrative fee. The process is categorised by specific reason codes, including fraud, non-receipt of goods, or technical errors, which dictate what evidence is required for the merchant to attempt a reversal through representment. Merchants must manage their chargeback ratios carefully, as exceeding monthly scheme thresholds, often set around 1%, can lead to inclusion in mandatory monitoring programmes and increased processing costs. Unlike a standard refund, the chargeback process involves a multi-stage cycle that may lead to arbitration if the merchant and issuer cannot reach an agreement through standard evidence submission.
Frequently asked
How do chargeback thresholds affect a merchant account?
Card schemes monitor the ratio of chargebacks to total transactions; if a merchant exceeds established limits, they may be placed into high-risk programmes. These programmes often incur mandatory monthly fines and require the merchant to submit detailed remediation plans to their acquirer to avoid termination of their MID.
What is the difference between a chargeback and a retrieval request?
A retrieval request is a preliminary inquiry where the issuer asks for transaction information before deciding whether to initiate a full chargeback. While not all disputes begin with a retrieval, responding to them promptly with valid evidence can often prevent a formal chargeback and the associated fees from being applied.
Related terms
Any cardholder-initiated challenge to a transaction, covers retrieval requests, chargebacks, pre-arbitration, and arbitration.
The merchant's response to a chargeback, with evidence that the original transaction was valid.
A chargeback filed by a real cardholder for a transaction they actually made, often because they don't recognise the descriptor or want a refund without contacting the merchant.
A pre-chargeback inquiry from the issuer asking the merchant for transaction details.
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