Definition
A chargeback happens when a cardholder disputes a transaction with their bank — claiming fraud, non-delivery, or that the goods were materially different from advertised. The bank pulls the funds back from the merchant's account while the dispute is investigated.
Merchants can submit evidence to contest a chargeback (delivery confirmation, communication records, signed acceptance, IP address, timestamps), but the burden of proof is on the merchant and the majority of disputes resolve in the cardholder's favour. Industries with high chargeback rates (above 1 percent of transactions) face elevated processing rates and can be placed on monitoring programmes by the card networks.
Why it matters
Chargebacks carry a fixed fee (typically 15–25) regardless of outcome, plus the lost transaction value. Elevated chargeback rates can lead to higher base rates or account termination by the processor. Preventing chargebacks through clear product descriptions, fast support, and fraud tools is far cheaper than fighting them.
Where this appears in your tools
The Payment Gateway Optimizer factors per-chargeback fees into the total cost comparison and lets you model the impact of different chargeback rates across providers.
Example
A 200 transaction is charged back. The customer keeps the 200, the processor takes a 20 chargeback fee, and the merchant is down 220 plus the original processing fee. Three of these in a month on a low-volume merchant erases an entire week of margin.
Common confusion
A chargeback is not the same as a refund. A refund is initiated by you (the merchant) and is usually cheap. A chargeback is initiated by the cardholder via their bank and triggers fees, evidence requests, and a formal dispute process — even if you would have refunded happily.