Understanding chargebacks: A guide for enterprise businesses

A chargeback, often a credit card chargeback, is a disputed transaction in which the cardholder requests their bank to reverse the payment. They play an important role in protecting consumers from fraud and billing errors. 

For businesses processing payments at scale, they’re also one of the most costly and time-consuming parts of managing payments.

Chargeback vs refund

The difference between a chargeback and a refund is that a refund is something the business chooses to issue while  a chargeback is in the hands of the customer and their issuing bank. 

Once the chargeback dispute has been filed, you have a limited time span to challenge it. Ultimately, the bank decides the outcome, and you pay a fee regardless of whether the chargeback is upheld.

Encouraging your customers to contact you directly for a refund is one of the simplest ways to reduce chargeback volumes. A refund costs you the transaction whereas a chargeback costs you the transaction, a fee, and time.

A chargeback reason code is a code that describes the basis for the dispute. Every chargeback is filed under a reason code. Visa and Mastercard each maintain their own reason code systems, covering categories including fraud, authorization issues, processing errors, and customer disputes.

These codes determine how you respond. For example, a chargeback filed under a fraud reason code requires different evidence than one filed under "item not received" or "not as described." They also affect how chargebacks are counted under scheme monitoring programs like Visa's VAMP, where fraud-related disputes carry additional weight.

Reason codes have limits. They reflect what the cardholder told their bank, not necessarily what actually happened. This means that a customer who regrets a purchase, or received the item but wants their money back, can incorrectly file under a fraud code. This is why chargeback data alone is a poor diagnostic tool. The stated reason and the real reason are often different. Without visibility into the full transaction, it's difficult to tell them apart.

For businesses managing chargebacks at scale, reason code analysis is useful for spotting patterns, identifying operational issues like unclear billing descriptors or fulfillment problems, and prioritizing which disputes are worth contesting. But it’s less useful as a measure of how much fraud you're actually experiencing.

Understanding the mechanics of a chargeback is useful not just for contesting disputes, but for identifying where in the process you have the most leverage to prevent them.

The chargeback process step by step

1. The cardholder contacts their issuing bank to dispute a transaction and the bank assigns a reason code.

2. The issuing bank initiates the chargeback and provisionally reverses the funds.

3. The chargeback is passed to the acquiring bank, who notifies the business.

4. You have a limited window, typically between 20 and 45 days depending on the card scheme, to respond with evidence.

5. If you submit a compelling case, the issuing bank reviews it and either upholds or reverses the chargeback.

6. If either party disputes the outcome, the case can escalate to pre-arbitration, and then arbitration, where the card scheme makes the final ruling.

Chargeback time limits

Chargeback time limits vary by card scheme and reason code, but they are strict. Missing a response window means forfeiting your right to contest the chargeback, regardless of the merits of your case. 

Chargeback arbitration

If your evidence doesn't resolve the dispute, it can escalate to arbitration, where the card scheme adjudicates. This is expensive: fees can run to several hundred dollars per case, and the losing party bears the cost. It's generally only worth pursuing if the transaction value is significant and your evidence is strong.

3D Secure and liability shift

One of the most effective ways to reduce chargeback exposure is through 3D Secure authentication, through which liability for fraud-related chargebacks shifts from you to the issuing bank.

The main cost of a chargeback is the transaction value. But for businesses processing payments at scale, that's rarely the whole picture.

The direct costs: Disputes and arbitration

Every chargeback comes with a fee, typically between $20 and $100 per dispute, charged by your acquiring bank regardless of the outcome. If you contest the chargeback and lose, you’ll have to pay both the fee and the transaction value. If it escalates to arbitration, you're looking at several hundred dollars on top of that. Multiply that across thousands of disputes and the numbers add up quickly.

The indirect costs: Operational overhead and lost goods 

Chargebacks also carry significant costs that are harder to quantify. For example, dispute management requires analyst time, operational processes, and in many cases dedicated tooling. 

There's also the cost of lost goods. If it’s a chargeback for a physical item, it’s unlikely to be returned. So you lose inventory as well as revenue. 

Scheme monitoring thresholds

For enterprise businesses, the most painful chargeback cost is the fines levied by schemes like Visa and Mastercard if your chargeback rates go over their thresholds. For example, under Visa's VAMP program (which came into full enforcement in October 2025 and tightened further in April 2026) businesses classified as "Excessive" face fines of $8 per disputed transaction. 

But the more significant risk is what happens to your acquiring relationship. Acquirers are also subject to scheme monitoring, which means a business with a high chargeback rate doesn't just risk its own standing with the schemes; it becomes a liability for its acquirer. That can lead to higher processing fees, stricter underwriting, or in serious cases, account termination.

Chargeback fraud is when a shopper makes an intentional purchase then contacts their issuing bank to claim the transaction was unauthorized, wanting a refund. 

This forces a payment reversal, causing the business to lose the money and inventory, while needing to pay additional dispute fees.

Chargeback fraud is a type of Friendly fraud, which encompasses both chargeback fraud and refund abuse.

Why friendly fraud is hard to fight

Friendly fraud is difficult to combat because: 

• It’s hard to prove: The cardholder claims they didn't make the purchase, or that the item never arrived, and without strong evidence on your side, the bank will typically side with the customer.

• It’s hard to spot: It often files under fraud reason codes so it looks like true fraud in your dispute data and contributes to your fraud ratio under scheme monitoring programs.

At scale, friendly fraud can be a significant and largely invisible drain on your revenue, often accounting for the majority of your chargeback volume.

Return item chargebacks

A related problem is the return item chargeback, where a customer disputes a transaction after returning an item, effectively getting both the refund and the chargeback. For businesses with high return volumes, this is worth monitoring.

Why the source of a chargeback matters

Because friendly fraud and true fraud require different responses, they also require different strategies. For example, you don’t want to waste time contesting legitimate fraud chargebacks, while accepting a friendly fraud chargeback means paying out on a dispute you could have won. 

The key to effective chargeback management is being able to tell the difference between legitimate and fraudulent chargebacks. This requires data that goes beyond the chargeback record.

If you're evaluating chargeback management tools, the market can be difficult to navigate. Providers range from standalone dispute management platforms to fully embedded fraud and chargeback solutions. The right choice will depend on your business, but these are the questions worth asking:

Does the solution use machine learning or rules-based controls?

Machine learning models analyze transaction patterns at scale and adapt to new fraud behavior over time. Rules-based controls give you the ability to act on what you know about your specific business, your customers, and your risk appetite. Effective chargeback prevention requires both.

Is the solution embedded, and what data is it working with?

A standalone chargeback management tool sits outside your payment flow and only sees the dispute after it has been filed, which limits what it can do to prevent it. A solution embedded in your payments infrastructure can access data across the full transaction, from authentication through to settlement, and act earlier in the process. That earlier intervention is where the most effective chargeback prevention happens.

Data coverage matters here too. It's worth understanding how many businesses a provider serves and across which markets and industries. A tool with limited data coverage will struggle to make accurate decisions for your business, particularly if you operate across multiple markets.

Can it explain its decisions?

Solutions that operate as black boxes make it difficult to identify false positives, tune your risk settings, or demonstrate compliance. So it’s worth looking for a solution that gives your team clear visibility into how decisions are made.

Does it offer chargeback guarantees (and is that really what you want)?

Some providers offer chargeback guarantees, underwriting your disputes in exchange for taking on the financial risk. This sounds attractive, but it comes with a trade-off that is worth understanding before you sign up.

If a provider is financially liable for your chargebacks, they have a strong incentive to be conservative. That means tighter risk thresholds, more blocked transactions, and more legitimate customers turned away. You may end up with fewer chargebacks, but you will also have fewer approved orders. 

Before committing to a chargeback guarantee, it is worth asking: Am I buying predictability at the cost of revenue and customer experience?

Our solution is built on the premise that you shouldn't have to choose between reducing chargebacks and protecting conversion. Because Adyen operates across the full payment stack, from authentication through to settlement and dispute management, it has access to data that a standalone tool simply cannot see. This includes cross-merchant data from the thousands of businesses processing on the Adyen platform, which means our models are trained on a breadth and depth of transaction data that is difficult to replicate.

Here’s what you can expect when you work with us: 

Act before a dispute is filed by identifying high-risk transactions in advance

The most effective chargeback prevention happens before a dispute is filed. We use machine learning trained on platform-wide data to identify high-risk transactions before they become disputes. This means you can block the transactions most likely to result in a chargeback without disrupting the experience for legitimate customers.

For fraud-related chargebacks, 3D Secure authentication automatically shifts liability to the issuing bank, meaning that even if a chargeback is filed, your business is not liable for the disputed amount and it shouldn’t count against your fraud ratio.

Reduce the operational burden without relinquishing control

Many businesses still rely heavily on rules-based fraud systems: spotting a spike in chargebacks, analyzing the data, identifying common patterns, and writing a rule to address it. The problem, as Merlin's Head of Global Payment Risk put it, is that "by the time these were implemented, fraud tactics had changed again."

We replace that reactive cycle with machine learning that adapts continuously. That doesn't mean removing human control entirely. Configurable rules still give your team oversight over edge cases, seasonal peaks, and business-specific nuances. But the ML does the heavy lifting, reducing the operational overhead of managing disputes and freeing your team to focus on decisions that actually need human judgment.

See the full picture, across every channel and market

Chargeback management becomes even harder when your fraud tooling can't connect data across channels or regions. A customer who shops in-store and disputes online, or who has a history of chargebacks across different payment methods, looks very different depending on what data you can see. Because we process payments across online and in-person channels in all key markets, we can help you build a more complete picture of each customer's behavior across every touchpoint and region.

Hunter is a good example of what's possible when chargeback prevention is treated as part of a broader payments strategy rather than a standalone problem. When Hunter moved to Adyen, they included their risk challenges in the RFP and worked with our team to build a concrete plan for reducing chargebacks year-on-year with clear KPIs. The result was a chargeback rate reduction from 2% to 0.2%, a 90% drop overall, achieved without compromising authorization rates. ​​Read the full Hunter case study

Hunter's experience is consistent with what a recent Forrester Total Economic Impact™ study found. By partnering with a unified solution like Adyen that offers in-built fraud prevention tools, businesses can reduce chargebacks by 27%, worth $2.5 million over three years

Chargeback rates rarely improve without a clearer picture of what's driving them. Visibility into where chargebacks are actually coming from, and the ability to act before a dispute is filed rather than after, is what separates businesses that manage chargebacks well from those that don't.

That means having the right data, the right tooling, and a clear view of what your chargeback rate is actually telling you across channels, markets, and fraud types.

If you'd like to explore how Adyen can help you reduce chargebacks without compromising conversion, get in touch with our team.