What are chargebacks and how do you prevent them?

Chargebacks happen when a customer disputes a transaction and requests a refund from their bank or card issuer. Learn what chargebacks are, why they occur, and proven strategies to prevent them for your business.

A chargeback is when a customer's payment is reversed through their bank, sending the money back to them. For merchants chargebacks cause unwanted fees, lost revenue, and wasted time.

The good news? Most chargebacks can be prevented with clear billing descriptors, proactive customer service, and fraud detection tools.

To tackle chargebacks effectively, let's start by understanding exactly what a chargeback is and how it works.

What is a chargeback?

A chargeback is a forced payment reversal initiated through the customer's bank - not a refund you choose to give.

When a chargeback is processed, funds are removed from the merchant's account and returned to the customer, effectively undoing the sale.

Chargebacks and refunds are very different, and chargebacks have the ability to hurt your business much more than simple refunds.

For course sellers, community owners, and SaaS providers, chargebacks can be hard to deal with - because unlike physical retail products, it’s not easy to prove the delivery of the promised product (information, experiences, etc.)

That's why some platforms like Whop and Kajabi help sellers with handling certain parts of payment services. Whop, for example, helps you with dispute communication and gives you tools to avoid chargebacks in the first place.

What is a partial chargeback?

A partial chargeback happens when a customer challenges only a part of a transaction instead of the full amount. Customers might make this dispute for incorrect amounts, damaged items, or missing parts of a service.

You should keep in mind that partial chargebacks still charge the entire chargeback fee to the business.

Differences between a refund and a chargeback

The key difference between chargebacks and refunds is that refunds are negotiated directly between the merchant and the customer, while chargebacks involve the bank.

Think of it this way: a refund is a conversation you control; a chargeback is a dispute someone else controls. It’s basically a refund that you didn’t authorize and now have to respond to.

When a customer asks for a refund, there isn’t a real “dispute” - but if you ever decide to dispute a chargeback as the business, you immediately have to pay a dispute fee of $15 to $100+ - and if you don’t want to dispute, you automatically lose.

In cases where the issue is not resolved or when the customer themselves escalates the issue directly to a bank, it becomes a chargeback with all the same consequences.

Can chargebacks happen with debit cards or credit cards?

Chargebacks work with both credit card chargebacks and debit cards.

• Debit cards: funds are taken directly from the cardholder's bank account
• Credit card chargebacks reverse the credit transaction.

Since debit cards are tied directly to the customer’s bank account and credit cards to the bank, credit cards generally provide stronger protection for the customer (so, against you).

Both credit and debit card disputes follow card network rules (Visa, Mastercard, etc.), but they're governed by different federal laws. Credit cards fall under Regulation Z (Truth in Lending Act), which provides broader consumer protections including quality disputes.

Debit cards also fall under Regulation E (Electronic Fund Transfer Act), which requires banks to handle unauthorized transactions and errors.

How does a chargeback work?

A chargeback happens after a payment is processed and the funds have already landed in your account. Essentially, it’s a customer forcing their bank to reverse a transaction they believe is unauthorized, incorrect, or fraudulent.

Here’s how it typically unfolds:

1. Customer disputes the charge
   The cardholder spots a transaction on their statement that seems wrong or suspicious and contacts their issuing bank to challenge it.
2. Issuing bank opens the chargeback
   The bank reviews the claim and formally initiates the chargeback process with the merchant’s bank. Funds are withdrawn from your (the business) account.
3. You get notified
   You see a notification about the chargeback in your email or payment platform you’re using. After this, you have around three weeks to respond to the dispute.
4. Decide if you want to dispute
   You get a chance to fight back by providing evidence that the charge was legitimate: receipts, delivery confirmation, customer communication, or any proof that supports the transaction.
5. Bank reviews both sides
   The issuing bank evaluates the customer’s claim and your evidence, then decides whether to reverse the charge.
   1. If the bank rules for the business: The funds stay in your account (or are returned if the customer’s account was temporarily credited).
   2. If the bank rules for the customer: The disputed amount is removed from your account and returned to the customer.
6. Arbitration if needed
   If the bank sides with you but the customer contests further, the dispute can escalate to the card network (Visa, Mastercard, Amex, etc.), which makes the final call.

Chargebacks are more dangerous than refunds as they’re a formal dispute that can hit your revenue, incur fees, and eat up time.

Plus, you’re not trying to reach an agreement with the customer, but with the bank.

Chargeback timeline

As a business, missing a chargeback response deadline means you automatically lose the dispute. Customers can file chargebacks up to 120 days after the original transaction with major networks like Visa, Mastercard, and American Express.

This means you should always keep detailed records of transaction, user access, delivery confirmations, and any other information that can be used as evidence in case of a dispute for at least 120 days.

Once notified of a chargeback, you have a limited window to respond with evidence. Response deadlines vary based on the card network:

• The response deadline is how long card networks give you to submit evidence after a chargeback is filed.
• The processor deadline is when your payment processor needs your evidence so they can review it and send it to the network.

After you submit evidence, your payment processor forwards it to the card network, who sends it to the issuing bank (the customer's bank). The bank reviews both the customer's claim and your evidence, then decides the outcome. This review takes 30 to 90 days.

The issuing bank either keeps the chargeback (customer keeps the money) or reverses it (you get the funds back).

• If you win, you get the disputed amount back.
• If you lose, you pay both the transaction amount and the chargeback fee.
• Depending on your payment processor (Whop and Shopify Payments), you might get the dispute fee back.

If you win but the customer or their bank still disagrees, it escalates to pre-arbitration (basically a second chargeback). You'll need to submit more evidence or accept the loss.

Most pre-arbitration cases resolve within another 30 to 45 days.

If pre-arbitration doesn't work, you or the customer can push it to arbitration. The card network makes the final call. This adds 2 to 4 more weeks and costs $500 to $1,000+, so most merchants only go this route for high value transactions with really strong evidence.

Common reasons for chargebacks

Chargebacks can be legitimate disputes, like billing errors, technical problems, and unauthorized transactions - but there’s a real chance for fraud, too.

Let’s take a look at the common chargeback reasons and how you can prevent them, and the relevant codes.

Friendly fraud

A legitimate customer disputes a legitimate charge, claiming they didn’t make the purchase. According to a fraud report from Cybersource in 2024, friendly fraud is the second most common fraud attack source.

Friendly fraud isn’t always malicious, customers might forget they made the purchase or just don’t recognize the charge.

On the other hand, some customers use your product and want their money back.

How to protect yourself from friendly fraud

• Keep detailed records of all customer actions
• Send detailed confirmation emails to your customers
• Make the billing descriptions recognizable
• Make sure customers can easily contact your customer service
• Implement secure payment to your system (3D Secure, address verification, etc.)

Non-delivery

Non-delivery happens when the customer doesn’t receive the product they bought from the business or never got access to the digital products/platforms they were promised.

While the dispute might be genuine, there are a lot of examples of people abusing the system by claiming they never got the product.

How to protect yourself from non-delivery chargebacks

• Take detailed logs of customer actions if you’re selling digital products
• Send detailed confirmation emails for all purchases
• Use shipping with tracking features if you’re selling physical products
• Require signature for order pick ups

Product issues

Chargeback due to product issues usually happens when the item customer receives is significantly different from the description, images, or expectations.

These disputes can be both legitimate (customer did receive the wrong product) and open for discussion (customer’s expectations were unrealistic).

How to protect yourself from product issue chargebacks

• Use accurate product listings. This includes images, descriptions, reviews, and specifications
• Clearly define what the product is in description fields
• Offer free previews or trials if you’re selling digital products

Billing errors

Billing error chargebacks happen due to double charges, incorrect amounts, or misapplied discounts. Chargebacks with billing error as the reason is rare, and the issue can be easily solved by you (the business) before the customer even feels the need to dispute the charge.

How to protect yourself from billing error chargebacks

• Regularly check your sales logs and audit your transactions
• Make sure promo codes apply the discount you claim they do
• Be very fast when it comes to billing issue reports from your customers so they don’t feel the need to dispute

Unrecognized charges

Unrecognized charge disputes happen when customers don’t recognize the business name or descriptor on their bank statement.

For example, when a makes a purchase from 'Joe’s Place' but sees 'ABC HOLDING LLC' in their statement, they might assume that charge was fraud.

Luckily for you, this is one of the most easily preventable chargeback reasons.

How to protect yourself from unrecognized charge chargebacks

• Make sure your billing description and name is recognizable
• Always mention how your details will look like in the bank description in your payment emails

Technical problems

Technical problem chargebacks happen due to checkout or payment processing errors that cause confusion or failed transactions. Like when a customer makes the same purchase twice because the system was giving out errors or the success messaging wasn’t clear.

This chargeback reason has a legitimacy rate higher than most others.

How to protect yourself from technical problem chargebacks

• Test your checkout and payment systems regularly to spot issues
• Make sure the after-payment redirects and successful payment messaging is clear on your platform
• Send out easy to understand success emails to your customers
• Look out for duplicate payments and get in contact with the customer before they dispute the charges

Advanced chargeback protection methods and tools

The best way to stop chargebacks before they happen is to set up your store and processes correctly from the start.

Most disputes are avoidable when you combine clear product info, transparent policies, and fast customer support - but these are just the basics.

Here are some more advanced measures you can take to prevent chargebacks:

• Utilize 3D Secure
  3DS is an authentication protocol that uses transaction data to assess risk in real-time with verification steps during checkout. When 3DS verified transactions are disputed, the responsibility is on the card issuer, not the merchant.
• Use multi-factor authentication
  Multi-factor authentication adds a layer of security by requiring verification like email codes, SMS, or authenticator apps.
  
  This both makes it harder for fraudsters to use stolen cards and illegitimate chargebacks to stick due to extra steps in the payment authorization.
• Implement early chargeback prevention alerts
  Many payment platforms provide early chargeback prevention alerts to businesses, so that they can act fast and get in contact with your customers before they escalate the issue into a formal chargeback dispute.
• Use platforms that have resolution centers
  Platforms like Whop and PayPal offer pre-chargeback resolution centers where the customer and the business can settle before the issue escalates.
• Use fraud prevention tools
  Fraud prevention tools like Sift, Signifyd, SEON, and Riskified use advanced datasets and (sometimes) AI to catch fraudulent transactions before they go through using fingerprinting, real-time risk scores, and identity verification.
• Send out renewal reminders
  Renewal reminders are automated notifications and emails that businesses send to customers with recurring subscriptions about their payment to prevent unrecognized payment chargebacks.
• Capture accurate evidence and logs
  Capturing accurate evidence and logs helps businesses with providing evidence for disputing chargebacks. These logs include data like access for digital products and delivery pick-up notifications for physical products.
• Offer delivery tracking
  Many delivery services provide tracking information to the customer and the business, and businesses should always provide tracking information to the customer upon purchases.

The true cost of chargebacks

Beyond losing the sale revenue, chargebacks hit hard in both fees and collateral damage. Many payment processors charge merchants between US $15 and US $100+ per incident, depending on the card network, merchant’s risk level, and agreement.

On top of the immediate reversal of the transaction, the merchant is also hit by additional expenses, and they stack up:

• Non-refundable chargeback fees
• Loss of product in some cases, especially in digital products
• Merchants invest time and resources investigating, gathering documentation, and submitting their case.
• Shipping, marketing, and other original costs like labor
• Worse, a high chargeback rate can lead to penalties, increased processing fees, or even account termination from the processor.

For example, processors like Stripe charge a flat $15 fee per dispute in the U.S. for each chargeback, regardless of whether you win or lose.

And industry benchmarks show that overall chargeback fees, before factoring in customer refunds, lost goods, or administrative time, typically start at $20 to $50 per case and can rise to $100 or more for high‑risk merchants.

According to the True Cost of Fraud study done by LexisNexis, every $1 lost to fraud, the actual cost is more than $5 when we include costs like labor time, operational costs, legal work, and customer churn.

As businesses are hit by fraud, they tend to ramp up their fraud security, which often complicates the payment process for customers. This then can result in churn. This is why businesses should carefully select which payment system and fraud prevention tools they use.

Chargeback fees are one of the biggest concerns, and they vary by payment service. Here’s what major providers charge.

Chargeback rates via different payment processors

Payment processors charge businesses when a chargeback is filed against them. These fees vary a lot between providers.

Most processors charge between $15 and $25 per chargeback, and this fee applies whether you win or lose the dispute - we’ll get more into this in the next section.

For example Whop, Stripe, and PayPal charges $15 when a chargeback is filed.

On Stripe, you’ll pay an additional $15 if you decide to dispute a chargeback, and this price can bump up to $30 if your chargeback rate is more than 1.5%. The additional fighting-price is refunded if you win the dispute.

Whop charges $15 per dispute and returns the disputed amount to the company’s balance if you win. Whop also offers Early Dispute Alerts ($29 per alert) that let you automatically refund small transactions before the customer escalates them into formal chargebacks.

Some international processors like Adyen charge around €25 per chargeback in Europe and $10 in the US.

On some payment processors, these fees don’t stay the same. When your business starts getting more and more chargebacks, some card networks will fine your business.

For example, Visa and Mastercard’s compliance programs can make you pay monthly fines or increased per-chargeback fees.

How to dispute a chargeback

If you believe a chargeback was made in error, you can fight it through a process called representment. This is your opportunity to prove the transaction was valid and get your revenue back.

While some businesses think that since chargebacks are supported by law, there’s no way to win them. That’s one of the biggest misconceptions businesses have about chargebacks.

Here’s what Bowen Xue, the Head of Payments Product had so say about this:

“I think a huge misconception is that you can't win chargebacks. People believe that. And it's completely false. They just don't know what evidence the banks expect in order for them to win.

Visa, Mastercard have guides for merchants on how to and what evidence to upload, depending on the reason of the dispute. If you follow that as a merchant very closely, you will win a lot of your disputes.”

Let's break down the steps of disputing a chargeback for businesses:

Step 1: Understand why the chargeback was filed and if you should fight it

The first thing you should do when a customer files a chargeback for a transaction is to understand why they did it, and if you should even dispute it.

When you don’t fight a chargeback, you’re going to pay the transaction amount plus the dispute fee.

When you do fight it, there are two possible outcomes:

• You win the dispute, and only pay the dispute fee
• You lose the dispute, and you pay the transaction amount and the dispute fee

This is why you should understand the reason, like non-delivery, unauthorized transaction, or billing errors, and gather your evidence accordingly.

If the transaction cost is low and you don’t think there is enough evidence on your end, choosing not to fight with the dispute can be a better option.

Step 2: Gather evidence

To win a chargeback dispute, you’re going to need solid evidence that proves the customer got what they paid for, whether it’s a physical product or a digital service. The type of proof you’re going to use depends on what you sold:

• If you sell physical products, you’re going to need shipping confirmation, tracking numbers, delivery signature from the customer (if available), photos of the item being delivered, and so on.
• If you sell digital products, you’re going to need logs of access, downloads, log ins, device IPs, and usage data.
• If you’re providing services online or offline, you’re going to need service availability records, policy acceptance, attendance proof, appointment records, and engagement letters.

Step 3: Prepare your defense and meet deadlines

In addition to the evidence you prepare, you should write a professional letter that explains why the chargeback claim of the customer is wrong and what kind of evidence you have to prove it.

Networks and banks assign deadlines to businesses when a chargeback claim is filed against them - missing a deadline means an automatic loss. These deadlines can vary by bank, network, processor, and issuer.

The general deadlines for some card networks are as follows:

You should keep in mind that the deadline is defined from when the chargeback is filed, and some processors are usually shorter, and representment deadlines reset at each stage (initial representment, pre-arbitration, and arbitration). 

Step 4: Use automation and encourage customers to resolve issues with your business directly

There are tools that help businesses with chargeback claims, like Signifyd, Kount, and Chargebacks911. These tools automatically gather transaction data, tracking information, emails, and other related information and submit them to the bank on your business’ behalf.

Some platforms like PayPal and Whop have features that let customers get in contact with businesses on-platform before they file an official chargeback.

For example, Whop’s Resolution Center acts as an intermediary channel where customers can go to the merchant directly instead of going to the bank and disputing the payment.

Madeline Cohen, the Head of Trust at Whop thinks creating ways for your customers to directly get in touch with you, the business, is important:

“When someone goes the route of formally disputing the payment or asking the bank to issue a chargeback, it's because there are no clear paths to get a refund or resolve a case with the merchant directly.

If your return or refund policy isn't clear, or if there's not a clear point of contact that you can reach out to at the business, sometimes it's easier to just go and ask the bank to give your money back.“

In the Resolution Center, customers can chat with merchants for issues they have, ask for a refund or just help.

Disputing chargebacks on Whop with the Dispute Fighter tool

Chargebacks typically happen when customers can't find a clear path to resolve issues directly with merchants. Whop addresses this with a defense system:

• The Resolution Center prevents chargebacks before they reach banks
• Dispute Fighter automates your response if a chargeback does occur

As I mentioned before, the Resolution Center is an intermediary channel where customers contact you, the business, directly instead of going to their bank.

If a dispute escalates to a formal chargeback, Dispute Fighter automatically gathers evidence, uploads supporting proof, and submits your response to the card issuer.

What happens when a chargeback is filed on Whop?

When a customer files a chargeback through their bank, Whop's Dispute Fighter activates immediately.

• You receive instant notification via your Whop dashboard and email.
• The notification includes the dispute reason code, the disputed amount, and your deadline to respond.
• The disputed amount is immediately debited from your Whop balance, along with a $15 dispute fee.
• These funds are held in reserve to ensure you can cover the cost if you lose the dispute.

Whop's system automatically begins gathering evidence when the dispute is filed. Then, the Dispute Fighter uploads customer access logs, policy disclosures, transaction data, and proof of service delivery to your dispute case file.

You can then access the dispute in your dashboard, review what Whop has already uploaded, and add any additional supporting evidence before the deadline. You can see the dispute status, outcome, and timeline in your Whop dashboard.

The automatic evidences and what you can add to it

Dispute Fighter automatically uploads customer details (email, name, billing address), transaction records, access activity logs showing product usage, and your Terms of Service and refund policy disclosures.

This proves the customer authorized the purchase, received the product, and agreed to your policies.

You can then strengthen your case by adding customer communications (chat logs, emails showing satisfaction or product use), screenshots of community engagement or course progress, and refund request documentation.

You should upload additional evidence before the deadline shown under the Dispute Fighter tool. Missing deadlines mean you'll automatically lose.

Regulations and compliance

Chargebacks exist because the law requires them.

• The Truth in Lending Act gives credit card holders the right to dispute charges within 60 days of the statement being sent. Liability for unauthorized credit card charges is capped at $50, and most issuers offer zero liability.
• Debit cards fall under the Electronic Fund Transfer Act, which has shorter timelines and weaker protection.
• Card networks like Visa and Mastercard enforce their own rules on top of these laws, and those rules come with serious consequences for merchants who exceed chargeback limits.

Network penalties

Networks keep track of the percentage of chargebacks you get per transaction. Exceeding this threshold results in escalating fines, reserve holds, and even account termination.

• Visa Acquirer Monitoring Program (VAMP), flags merchants as when they exceed the 1.50% ratio with more than 1,500 monthly disputes.
• Mastercard, on the other hand, flags merchants when they exceed a 1.5% ratio with more than 100 disputes for two consecutive months. In these cases, fines start at $1,000 per month.

Most processors act before network thresholds hit. Reserve holds start around 0.75% to 1%, and potential termination above 2%.

Reason codes

Every chargeback comes with a reason code, a label that explains why the bank reversed the transaction. The issuing bank assigns this code when the card holder files their dispute, and it stays with the case through resolution.

Reason codes are important for businesses because they tell you why the customer filed the dispute and what kind of evidence you should provide

 A "not received" dispute requires delivery proof. An "unauthorized" dispute requires proof the cardholder actually made the purchase.

Different codes also have wildly different win rates. Duplicate charge disputes are easy to overturn with documentation. Fraud claims are more difficult unless you have device fingerprinting or prior transaction history.

Here are the most common reason codes across all four major networks:

When responding to a dispute, your evidence must directly address the reason code.

Sell with Whop for the ultimate in chargeback protection

Chargebacks are a headache for every business: lost revenue, dispute fees, and wasted time. 

But with Whop, you can dramatically cut them down before they even happen.

Whop Payments is built for the future of commerce. Every checkout runs through a smart orchestration engine that increases payment approval rates by up to 11% and filters out suspicious transactions before they reach your account. 

If a dispute does occur, Whop’s Dispute Fighter tool collects evidence, responds on your behalf, and tracks outcomes in real time.

Pair that with the Resolution Center, which flags potential issues before they escalate, and you’ve got a system designed to protect both your income and your reputation.

Start selling with Whop today and protect your revenue with smarter payments, fewer disputes, and higher conversion.

Chargeback FAQs

What are chargeback regulations?

Chargebacks are regulated by both card network rules (like Visa and Mastercard) and federal laws that protect consumers. Two key regulations apply:

• Regulation E (Electronic Fund Transfer Act): Covers debit cards and electronic transfers, protecting consumers from unauthorized or erroneous transactions.
• Regulation Z (Truth in Lending Act): Applies to credit cards, ensuring fair billing practices and dispute rights.

These laws define how consumers can dispute charges — and what merchants must do to respond within set timeframes.

How long do chargebacks take to resolve?

Most chargebacks are resolved within 30 to 90 days, depending on the card network and complexity of the case. Some disputes, especially those that move to arbitration, can stretch to 120 days or more. Acting fast and submitting complete evidence gives you the best chance to shorten the timeline and win.

Can merchants win chargebacks?

Yes, if they can prove the transaction was valid. Merchants win roughly 20–40% of disputes, but success depends on how strong and organized the evidence is.

What happens if a business gets too many chargebacks?

High chargeback ratios (typically above 1%) trigger penalties from payment processors or card networks. Merchants might face higher transaction fees, stricter monitoring programs like Visa’s Chargeback Monitoring Program, or even account termination.

How can Whop help reduce chargebacks?

Whop merchants can use Dispute Fighter to automatically handle chargeback responses with pre-filled evidence and faster submissions. Plus, the Whop Resolution Center flags high-risk transactions and customer disputes before they become chargebacks, helping merchants prevent revenue loss before it starts.