Chargeback
A chargeback is a transaction reversal initiated by a cardholder's bank when the cardholder disputes a payment, returning funds to the cardholder and imposing fees and penalties on the merchant.
Chargebacks occur when cardholders claim a transaction was unauthorized, the goods/services weren't received, or the merchant failed to honor a refund. The cardholder's bank (issuer) initiates the chargeback, the card network rules on the dispute, and the merchant's bank (acquirer) debits the merchant.
Chargeback economics: merchants typically pay $20–$100 in chargeback fees per dispute, plus lose the transaction amount. Merchants with chargeback rates above 1% (Visa) or 0.9% (Mastercard) are placed in monitoring programs and face additional fees or termination.
For PayFac programs, chargeback liability is owned by the PayFac — not the sub-merchant. The PayFac is responsible for sub-merchant underwriting to control chargeback exposure. For BaaS and direct programs on the issuing side, chargebacks work differently — issuers initiate chargebacks on behalf of their cardholders.
Chargeback management is an operational requirement for any payment program: dispute resolution processes, representment workflows, and fraud prevention tools are all designed to manage chargeback rates.