What a chargeback is
A chargeback is when the bank that issued your customer’s card takes back the money for a sale, because the customer disputed it.
Three words to know:
- Cardholder: your customer, the person whose card it is.
- Issuer: the cardholder’s bank.
- Acquirer: your processor’s side, the company that handles card sales for your business.
The card networks set the rules. TD’s terms say: “Chargebacks are processed pursuant to the processes set out by the Payment Card Networks.” TD adds that it “may assist you in disputing a Chargeback,” but “cannot reverse Chargebacks.”
What is a chargeback fee?
A chargeback fee is a fee some processors charge each time one of your sales is charged back. It comes on top of the sale amount, which goes back to the customer if they win.
Published chargeback fees:
| Provider | Chargeback fee | Where it is listed |
|---|---|---|
| TD Merchant Solutions | $10 to $25 “Per chargeback or adjustment” | TD fee descriptions |
| Helcim | “$15 CAD or $0 per occurrence. Chargebacks that are resolved in your favor will have their fee fully refunded back to you.” | Helcim fee disclosure |
| Square Canada | “There are no fees for dispute management services for chargebacks” | Square help page |
The fee is only one part of what a chargeback costs. See What it costs you beyond the fee below.
How a dispute runs
Visa’s rules set out the steps. In short:
- Dispute. The cardholder’s bank files a dispute. Visa’s rules say: “An Issuer must dispute each Transaction separately.”
- Your processor tells you. Square, for example, says it lets you know “right away” and holds the disputed funds.
- You respond. You either accept it, or send evidence to challenge it.
- Pre-arbitration. Visa’s rules let the acquirer challenge the dispute, within 30 calendar days for fraud and authorization disputes.
- Decision. The cardholder’s bank responds. If it is still not resolved, Visa’s rules let the acquirer file for arbitration, within 10 calendar days of that response.
Step 1: the cardholder disputes a sale with their bank. Step 2: the cardholder's bank, the issuer, files the dispute. Step 3: the card network, which sets the rules, passes it on. Step 4: the acquirer, your processor, tells you, and some processors hold the disputed funds. Step 5: your business accepts the dispute or sends evidence. Your response goes back through your processor and the network to the issuer, which decides.
Square says the bank can take “up to 90 days from the start of the dispute to make their final decision,” and that “Once the bank makes their decision, the dispute outcome is final.”
Time limits. Each reason has its own. For example, Visa’s rules give 120 calendar days from the Transaction Processing Date for “Other Fraud” disputes, both card-present and card-absent.
What it costs you beyond the fee
A chargeback can cost you in several ways:
- The sale amount. Square says it places “an immediate hold on the disputed funds.” If the customer wins, the money goes back to the customer.
- The processing fee on the original sale. Square says that if the customer wins, “The processing fees for the payment aren’t refunded back to you.”
- A chargeback fee, if your processor charges one.
- The goods or service, if you shipped or provided them.
- Your time to gather and send evidence.
The published chargeback fees are in the table above.
TD’s terms also say “The amount of any Chargeback and the costs we incur in collecting and processing any Chargeback are amounts that you must pay to us on demand.”
The most common reasons
Visa’s rules group disputes into four categories:
| Visa category | What it covers, in plain words | Examples from Visa’s list |
|---|---|---|
| 10: Fraud | The cardholder says they did not make the sale | Counterfeit card; other fraud, card present or card absent |
| 11: Authorization | A problem with the approval | Declined authorization; no authorization |
| 12: Processing Errors | A mistake in how the sale was put through | Incorrect amount; duplicate processing; incorrect currency |
| 13: Consumer Disputes | The cardholder has a problem with what they bought | Not received; cancelled recurring payment; not as described or defective |
Square lists the most common reasons as fraud, “Goods or services not received” and “Goods or services not as described”.
Swiped chip cards. Square says: “banks resolve all payment disputes involving swiped chip card transactions in the customer’s favor if the customer claims their card was used fraudulently. This means you’ll have to cover the loss if a customer disputes a payment you accepted by swiping their chip card.”
The evidence card networks ask for
What you send depends on the reason. Visa’s rules list “Compelling Evidence” an acquirer may send for some fraud disputes. For card-absent fraud, the list includes:
- Photo or email evidence linking the person who received the goods to the cardholder.
- For goods picked up in store: the cardholder’s signature on the pick-up form, or their ID.
- For goods delivered: proof of delivery to an address that matched the card’s billing address check.
- For digital goods: a description, the download date, and details such as the IP address or device ID.
Square says its dispute form gives “The exact deadline to send us the dispute documentation” and “The information the bank needs to make their decision on the case.” Square gives you seven days from its first email to respond.
What the sources say
- Chip cards. Square says banks resolve disputes on swiped chip card sales in the customer’s favour if the customer claims fraud, and that the merchant covers the loss. The chip has to be tapped, dipped or inserted to be read.
- Records. Visa’s list of compelling evidence includes delivery proof, pick-up signatures and ID details.
- Deadlines. Square gives seven days from its first email to submit information.
- Refunds. Square says a merchant can choose to return the funds instead of challenging a dispute.
- Declined cards. TD lists a separate network fee each time a declined card is tried again, such as $0.15 from Visa in Canada. See PCI Fees and Non-Compliance Fees.
Where to go from here
Chargebacks usually have their own section on a statement. TD’s sample statement, for example, has a “Summary of adjustments and chargebacks”. How to Read Your Merchant Statement shows where it sits.
Provider pages: TD Merchant Solutions, Helcim and Square. Want a partner to review your statement? We will put you in touch. Start the free statement review.