What is a chargeback, and how a small shop can win one

What a chargeback is

A chargeback is a reversal of a card payment that the cardholder asks their own bank for. Stripe's documentation describes a dispute, also called a chargeback, as one that occurs when a cardholder questions your payment with their card issuer. The buyer does not need your agreement. They contact the bank that issued their card, say what went wrong, and the bank opens a case on the card network, which immediately reverses the payment.

Four parties are involved. The cardholder files the claim. The issuing bank reviews it. The card network, such as Visa or Mastercard, sets the rules and deadlines. Your payment processor passes the case to you, takes the disputed amount from your balance and may charge a fee. The money leaves your account first, and you have to prove the sale was valid to get it back.

How a chargeback works, step by step

Card networks set the rules, so the steps look the same on every processor. The deadlines for each step are in the time limits section below.

1. The buyer contacts their bank

   The cardholder tells their card issuer that a charge is wrong and gives a reason, such as fraud or an item that never arrived.

2. The processor takes the money and tells you

   Your processor pulls the disputed amount from your balance and may charge a dispute fee. On Shopify Payments, the amount is deducted from your next available payout.

3. You accept or respond

   You either accept the claim or send evidence that the sale was valid. On Stripe, if you miss the deadline, you automatically lose the dispute.

4. The issuer decides

   If you win, the money returns to your balance. If you lose, the buyer keeps it. On Shopify Payments, there's no appeal process and the decision is final. The whole process can take 2-3 months.

Chargeback vs refund

A refund is something you choose to give. A chargeback is something the buyer's bank does to you. The money ends up in the same place, back with the buyer, but the cost and the control are different.

If a buyer has a fair complaint, refund before they go to the bank. On Stripe, you can't issue a refund outside the dispute process while the dispute is open. A partial refund does not fully protect you either: a payment that was partially refunded can be disputed for the full payment amount.

Chargeback fees on Stripe, PayPal, Square and Shopify

The table shows each processor's published terms for a US seller: the fee on top of the lost sale, whether you get that fee back if you win, and how long you have to answer.

On Stripe, responding adds a second fee of $15.00. If you respond and lose, you lose the sale, the received fee and the countered fee.

PayPal's Standard Dispute Fee applies both when the buyer files a claim directly with PayPal and when they file through a chargeback with their card issuer. It is not charged on claims with a transaction value less than twice the Standard Dispute Fee. A High Volume Dispute Fee of 30.00 USD applies instead to sellers with a dispute rate of 1.5% or more with more than 100 sales transactions in the previous three full months.

Square charges no fees for dispute management services for chargebacks, but if you lose, the processing fees for the payment aren't refunded.

Chargeback time limits

Two clocks run in every chargeback: how long the buyer has to file, and how long you have to answer. Card networks and processors set them, so the limits differ by card and by processor.

• Buyers paying by card: card networks typically allow disputes within 120 days of the original payment, with more time in some situations.
• Buyers paying through PayPal: an Item Not Received dispute must be opened within 180 days of the date the buyer sent the payment.
• US credit card law: according to the Consumer Financial Protection Bureau, a cardholder protects their billing-error rights by sending a written billing error notice within 60 calendar days after the charge appeared on the statement.
• Sellers on Stripe: the response window is usually 7-21 days, depending on the card network.
• Sellers on Shopify Payments: usually 7-21 days to build a response.
• Sellers on Square: seven days from the first notification email.
• Sellers on PayPal: the standard 10 day timeframe to respond to cases, or within 3 days for sellers on the High Volume Dispute Fee.
• The decision on Stripe: after you submit evidence, the issuer has a limited time to decide: usually 60-75 days, depending on the card network.
• The decision on Shopify Payments: the card company review can take up to 75 days after you submit.

Friendly fraud: when the real cardholder disputes a real order

In Stripe's definition, friendly fraud occurs when a legitimate cardholder makes a purchase, but then disputes it at a later date. Stripe also calls it first-party misuse or first-party fraud.

Stripe says it can either be accidental, because they didn't recognize the transaction on their statement, or deliberate, for example because of buyer's remorse. Either way, the evidence you need is the same: proof that the cardholder placed the order and received it.

For qualifying Visa fraud disputes, the Compelling Evidence 3.0 rules can help a shop with repeat customers. Stripe's guide says the dispute needs at least two previous transactions that weren't disputed, using the same payment method, and that those earlier payments must be within 120-364 days of the disputed transaction.

How to respond to a chargeback and win it

These steps apply whichever processor you use. Only the dispute forms differ.

1. Read the reason and the due date

   The notice shows a reason, such as fraudulent, product not received or not as described, and a due date. The reason tells you what evidence the issuer wants.

2. Decide whether to fight

   If the buyer is right, accept the dispute instead of sending a refund: on Stripe, you can't issue a refund outside the dispute process while the dispute is open. Fight when you can prove you shipped what you sold.

3. Write to the buyer

   Ask the buyer what went wrong, and keep the exchange in writing, since it can become evidence. If the buyer says they withdrew the claim, respond anyway: on Stripe, you must respond with evidence for the dispute to be closed in your favor.

4. Gather evidence and write a short rebuttal

   Match each document to the reason code, using the table below. Open with one paragraph that states what was ordered, when it shipped and where it was delivered, and name each attached file.

5. Submit once, before the deadline

   On Stripe you have only one opportunity to submit your response, and evidence files are limited to 4.5 MB combined. Banks won't review any external content, such as audio or video files or links, so attach screenshots and PDFs instead of links.

Evidence that wins a chargeback for a small shop

Issuers decide on documents. The strongest response answers the exact reason the buyer gave, with records created at the time of the sale.

Leave out long chat logs, unrelated orders and undated screenshots. A refund policy that the buyer saw at checkout helps in credit-not-processed and not-as-described cases, so publish one before you need it.

Chargeback protection and prevention

Some processors cover certain chargebacks for you. Shopify Protect for Shop Pay offers free chargeback protection for eligible orders against fraudulent and unrecognized chargebacks. PayPal Seller Protection may result in you retaining the full purchase amount on eligible transactions, and it may also apply when a transaction is reversed because of a successful chargeback by a buyer because they did not authorize the card-funded payment. It does not cover everything: Item Not Received claims filed as chargebacks with the card issuer are not eligible.

• Use a statement descriptor buyers recognise. On Stripe it is limited to between 5 and 22 characters, so use the shop name the buyer saw at checkout.
• Ship with tracking, and add signature confirmation on expensive orders.
• Show your refund policy at checkout, and answer messages quickly so buyers ask you before their bank.
• For in-person sales, dip or tap chip cards. Square notes that banks resolve disputes on swiped chip card transactions in the customer's favor when the customer claims fraud.

Where Nation fits

Questions about chargebacks