Who gets charged? How do chargebacks work?
Date: 30/07/2026
A chargeback is when a cardholder asks their bank or card provider to reverse a card payment and return the money from a transaction. If the claim is successful, the funds are taken back from the merchant's account and returned to the customer. Chargebacks are designed to protect consumers from fraud, unauthorised transactions, or issues with goods and services.
For businesses that accept card payments, chargebacks are a normal part of trading. However, they can be costly, time-consuming and, if they occur too frequently, can affect your relationship with your payment provider. Understanding how chargebacks work and how to prevent them can help protect your revenue and reputation.
A chargeback is a payment reversal initiated by the customer's card issuer. Unlike a refund, which is voluntarily processed by a business, a chargeback is raised directly with the customer's bank or card provider.
Chargebacks were originally introduced to help protect consumers from fraudulent card transactions. Today, they can also be used when a customer believes they have been charged incorrectly, have not received what they paid for, or have experienced a problem with a purchase.
Both debit and credit card transactions can be subject to chargebacks, depending on the card scheme's rules.
How Do Chargebacks Work?
The chargeback process involves several parties, including the customer, their bank, the merchant, and the merchant's payment provider.
A typical chargeback process looks like this:
- The customer identifies a transaction they want to challenge.
- They contact their bank or card issuer and raise a dispute.
- The card issuer reviews the claim and may raise a chargeback.
- The disputed funds are usually removed from the merchant's account while the investigation takes place.
- The merchant is given the opportunity to provide evidence supporting the transaction.
- The card issuer reviews the evidence and makes a final decision.
- The funds are either returned to the merchant or refunded to the customer permanently.
The exact process varies depending on whether the payment was made using Visa, Mastercard or another card scheme, but the overall principle remains the same.
Who Gets Charged During a Chargeback?
One of the most common questions merchants ask is who actually pays for a chargeback.
In most cases, the cost initially falls on the business that accepted the payment. When a chargeback is raised, the disputed transaction value is typically deducted from the merchant's account. The merchant may also be charged an administration fee by their payment provider.
If the merchant can successfully prove that the transaction was legitimate, they may recover the funds. However, if the card issuer sides with the customer, the business loses both the transaction value and any associated chargeback fees.
For example, if a customer disputes a £250 transaction and the chargeback is upheld, the merchant could lose the £250 sale as well as any chargeback processing fees.
This is why chargebacks can be particularly challenging for businesses operating on tight margins.
Common Reasons for Chargebacks
Chargebacks can happen for several reasons, some genuine and some avoidable.
1. Fraudulent Transactions
If a cardholder believes their card details have been stolen and used without permission, they may raise a chargeback.
2. Goods or Services Not Received
Customers can dispute a payment if they believe an order never arrived or a service was not provided as agreed.
3. Duplicate Charges
Accidentally processing a payment twice can result in a chargeback claim.
4. Subscription and Recurring Payment Issues
Customers may challenge recurring payments they believe were cancelled or were not clearly explained.
5. Customer Recognition Problems
Sometimes a customer simply does not recognise a transaction on their statement. This often happens when the trading name on the card statement differs from the business name customers know.
6. Friendly Fraud
This occurs when a customer makes a genuine purchase but later disputes the payment, often claiming they did not authorise it or did not receive the goods. Friendly fraud has become increasingly common for online businesses.
What Chargebacks Mean for Businesses
A chargeback does not just result in lost revenue. It can have wider consequences for a business.
Frequent chargebacks can:
- Increase operating costs
- Create additional administration work
- Impact cash flow
- Affect relationships with payment providers
- Lead to increased scrutiny from card schemes
- Damage customer trust if disputes become common
Payment providers and card schemes monitor chargeback levels closely. Businesses with unusually high chargeback rates may be required to implement additional controls or face higher processing costs.
How to Dispute a Chargeback
If you believe a chargeback has been raised incorrectly, you can challenge it.
The key is providing strong evidence to support the transaction. This may include:
- Proof of delivery
- Signed receipts
- Invoices
- Customer correspondence
- Tracking information
- Terms and conditions accepted by the customer
- Evidence of successful service delivery
Acting quickly is important, as chargeback disputes are subject to strict deadlines. Your payment provider will usually notify you when a chargeback has been raised and explain what information is required.
The stronger your records, the greater your chances of successfully defending a legitimate transaction.
How to Reduce the Risk of Chargebacks
While chargebacks cannot always be prevented, there are several steps businesses can take to reduce the likelihood of disputes.
1. Use Clear Billing Descriptors
Make sure the business name that appears on bank statements is recognisable to customers.
2. Provide Excellent Customer Service
Many disputes can be resolved directly with a customer before they escalate into chargebacks.
3. Keep Accurate Records
Maintain records of transactions, receipts, delivery confirmations and customer communications.
4. Be Transparent
Clearly explain pricing, delivery times, refund policies and subscription terms before customers complete a purchase.
5. Invest in Fraud Prevention
Address Verification Service (AVS), Strong Customer Authentication (SCA), 3D Secure and fraud screening tools can help reduce unauthorised transactions.
6. Process Refunds Promptly
When a customer has a legitimate complaint, a quick refund is often significantly cheaper than dealing with a chargeback.
Summary
Chargebacks play an important role in protecting consumers, but they can create challenges for businesses that accept card payments. Understanding what a chargeback is, how the process works and who gets charged can help merchants respond effectively when disputes arise.
The best defence against chargebacks is a combination of clear communication, strong record keeping and robust payment security measures. By putting the right processes in place, businesses can reduce disputes, protect revenue and spend less time dealing with avoidable claims.
Need help choosing a payment solution that supports secure transactions and helps reduce avoidable disputes? Speak to Handepay today to find the right card payment setup for your business.
