What Is Chargeback?

A chargeback is not the same thing as a refund. A refund is voluntary, initiated by the merchant when a customer asks for one. A chargeback is initiated by the cardholder's bank, comes with its own formal dispute process the merchant can contest or accept, and typically carries a chargeback fee billed to the merchant regardless of how the dispute is ultimately resolved.

Processors and sponsor banks track every merchant's chargeback ratio, chargebacks measured as a share of total transactions, over time, and an elevated ratio is one of the clearest, most concrete signals underwriting uses to classify or reclassify an account as higher risk. That classification can trigger a rolling reserve or closer ongoing monitoring, changes that follow directly from the account's actual dispute history rather than a subjective judgment call.

Chargeback exposure also runs meaningfully higher on card-not-present transactions, since there's no physical card, chip, or signature on file to point to later if a cardholder disputes the charge. That's part of why a CNP-heavy business, an e-commerce store, a phone-order operation, draws closer underwriting scrutiny than a comparable card-present retail account processing similar volume.