Chargeback

A transaction reversal initiated by a customer's bank or credit card company that returns funds to the customer and deducts them from the merchant's account. Chargebacks occur when customers dispute charges, either due to fraud, dissatisfaction with a product or service, not recognising the transaction, or not receiving what was promised. Unlike refunds (which merchants control), chargebacks are forced reversals. Merchants typically face fees ($15-$100) for each chargeback, and excessive chargeback rates can result in payment processors dropping you. Common reasons include unclear business names on statements, inadequate customer service, or delayed fulfilment. Digital product businesses must be particularly vigilant.

Why it matters

Chargebacks can devastate profitability, especially for new businesses. Maintaining a chargeback rate below 1% is critical for keeping payment processing accounts. Clear communication, good customer service, and immediate responses to inquiries prevent most chargebacks.