---
title: "Chargeback"
url: "https://mahouse.world/glossary/chargeback"
type: "glossary term"
topic: "Disputes"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Chargeback

A chargeback is the reversal of a card payment by the cardholder's issuing bank at the cardholder's request — for fraud, goods not received, or a charge not recognised — under rules set by the card network, with the money taken back from the merchant through its acquirer. The merchant may contest it by representment, and a high chargeback ratio can cost a merchant its ability to accept cards.

**Also known as:** Dispute, Card dispute, Reversal

## Key facts

- **Used at:** after a payment, within the network's time limit — typically 120 days from the transaction or the expected delivery
- **Who pays:** the merchant, unless it wins the dispute; the acquirer, if the merchant cannot pay
- **Threshold:** Visa's monitoring programme (VAMP) counts fraud and disputes together and treats a merchant as excessive at 1.5% of transactions from April 2026 (2.2% before); Mastercard's starts at 1.5% and 100 chargebacks a month — with fees per dispute above the line
- **Reason codes:** fraud, authorisation, processing error, consumer dispute — each with its own evidence rules
- **In a deal:** the chargeback ratio by merchant is the measure of a portfolio's risk, and the reserve is what covers it

## How a chargeback works in practice

A cardholder tells their bank they do not recognise a €240 charge. The issuer raises a chargeback under the relevant reason code and takes €240 back from the merchant's acquirer through the network; the acquirer debits the merchant, adds a fee of €15–40, and forwards the dispute. The merchant has a few weeks to represent the transaction with evidence — a signed delivery, a matching IP address, correspondence with the customer — and the issuer decides. If the parties still disagree, the case goes to pre-arbitration and then arbitration at the network, where the loser pays the network's fee as well.

For the merchant, chargebacks are a cost and a risk. The cost is the reversal plus the fee. The risk is the ratio: a merchant whose chargebacks exceed the network's threshold enters a monitoring programme, pays fines that rise by the month, and can be terminated by its acquirer, which is then unable to place it elsewhere. For the acquirer the risk is credit: a merchant that takes payment for goods to be delivered in six months and then fails leaves the acquirer paying every chargeback with no merchant to collect from — which is why acquirers hold reserves against travel, events and subscription merchants.

In an acquisition of a payments company the chargeback data is the loan book: ratios by merchant and by month, the merchants in monitoring programmes, the reserves held against them, and the losses the acquirer has actually eaten. A portfolio with a 0.4% ratio and one with 0.9% are different businesses at the same revenue.

## Example

An acquirer processes €2bn a year for 4,000 merchants. Its portfolio chargeback ratio is 0.35%, but twelve merchants in travel and ticketing run above 0.9% and are in Visa's monitoring programme, with €180,000 of fines in the past year and €2.4m of reserves held against them. A buyer's diligence reprices those twelve at their net contribution after fines and reserve cost — a €600,000 reduction in EBITDA — and takes a specific indemnity for any merchant that fails within twelve months of completion with prepaid deliveries outstanding.

## Common mistakes

- Reading the portfolio ratio and missing the twelve merchants that drive it.
- Reserves sized on last year's ratio for merchants whose delivery risk has changed.
- Merchants who do not represent, because it is work, and lose disputes they had the evidence to win.
- Acquirers who board a merchant on its own description of its business, not its refund and dispute history.
- Confusing a chargeback with a refund: a refund is the merchant's decision, a chargeback is the issuer's.

## Related terms

- [Representment](https://mahouse.world/glossary/representment.md)
- [Pre-Arbitration](https://mahouse.world/glossary/pre-arbitration.md)
- [Card Network](https://mahouse.world/glossary/card-network.md)
- [Reserve Account](https://mahouse.world/glossary/reserve-account.md)
- [Decline Rate](https://mahouse.world/glossary/decline-rate.md)
- [Interchange Fee](https://mahouse.world/glossary/interchange-fee.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov