CATEGORY - ECOMMERCE

Understanding Chargebacks: Types, Causes, Prevention, and How to Resolve Them

ECOMMERCE - 20 May, 2025

Table of Contents

What is a Chargeback?

A chargeback is a safety mechanism offered by banks that allows a customer to dispute a card payment they believe is incorrect, fraudulent, or not as promised. When a cardholder raises a chargeback request, their bank temporarily reverses the payment and pulls the money from the merchant's account.

This process was originally introduced to protect customers from fraud or unsatisfactory products and services. For example, if someone spots an unknown transaction or receives a damaged item, they can file a chargeback with their bank to get their money back while the matter is investigated.

For businesses, it’s crucial to understand how chargebacks work, why they happen, and how to prevent them. Frequent chargebacks can hurt a brand’s reputation and cash flow. That’s why using tools like Easebuzz’s Dispute Resolution System (DRS) can be a smart move. These tools help businesses track disputes, respond on time, and reduce the risk of losing revenue due to chargebacks.

Different Types of Chargeback

In today’s fast-growing digital payment ecosystem, chargebacks remain a major challenge for businesses. Knowing the types of chargebacks can help companies manage disputes better and reduce revenue losses.

Fraudulent Chargebacks: These happen when someone makes a transaction without the cardholder’s consent—often due to stolen card details or identity theft. The customer later disputes the charge, leading to loss of both payment and product. Businesses must invest in secure payment gateways and customer verification tools to stay protected.
Non-Receipt Chargebacks: This occurs when a customer claims they haven’t received their order, even after making the payment. Reasons could include courier delays, wrong address, or communication gaps. To avoid this, businesses should provide order tracking, clear shipping timelines, and proof of delivery.
Quality-Related Chargebacks: These are raised when a customer is unhappy with the product quality—maybe it’s defective, damaged, or doesn’t match the description. Ensuring quality checks, honest product listings, and prompt support can significantly reduce such issues.

By understanding these chargeback types, businesses can build better trust and protect their earnings.

How to Manage Chargebacks Effectively

By understanding these types of chargebacks, businesses can take proactive steps to prevent and manage them. Leveraging a reliable payment gateway like Easebuzz, which offers a Dispute Resolution System (DRS), can significantly streamline chargeback management and help reduce the risk of financial loss. The DRS helps businesses resolve disputes efficiently, making the process smoother and more cost-effective. With the right strategies and tools in place, businesses can navigate chargebacks with ease and maintain customer trust.

Chargeback Examples

Example 1: Non-Delivery of Goods

Amit orders a smartwatch online for ₹12,000, with an expected delivery date within a week. However, after two weeks, the product still hasn’t arrived. Despite multiple attempts to contact the customer service team, Amit receives no resolution. Frustrated, he files a chargeback with his bank, citing non-delivery of the product.

The bank temporarily reverses the ₹12,000 charge and returns the amount to Amit’s account. The retailer is notified of the chargeback and must either prove delivery or resolve the issue with Amit to dispute the charge.

Example 2: Subscription Service Not Cancelled

Neha subscribes to a video streaming service for ₹2,500 a month. After using it for a few weeks, she decides to cancel her subscription. However, the service provider continues charging her for an additional month, despite her cancellation request being confirmed. When the provider refuses to issue a refund, Neha files a chargeback with her bank.

The bank reviews the case, and if Neha’s claim holds true, the ₹2,500 is refunded to her account. The service provider may be required to rectify its cancellation process to avoid future disputes.

Example 3: Unauthorized Transaction

Ravi sees an unfamiliar ₹8,000 charge on his credit card statement for an e-commerce purchase he never made. After contacting the online store and confirming that no such order was placed under his account, Ravi immediately disputes the charge with his bank, claiming fraud.

The bank investigates the transaction, and if it is found to be unauthorized, the ₹8,000 is refunded to Ravi’s account. The e-commerce platform could also face penalties for allowing fraudulent transactions without sufficient security checks.

Example 4: Defective Product

Simran buys a designer handbag for ₹25,000 from an online luxury store. When the product arrives, it has visible defects, including loose stitching and a damaged zipper. Simran contacts the store’s customer service, but after repeated attempts, no replacement or refund is offered. She then files a chargeback with her bank, citing defective goods.

Upon investigation, the bank finds the claim valid, and Simran is refunded ₹25,000. The retailer is given an opportunity to present evidence of the product’s quality, but if they fail, the chargeback stands.

How Does the Chargeback Process Work?

Chargebacks are a vital part of today’s digital payment system, offering protection to customers against fraud or unsatisfactory purchases. But for businesses, they can be costly. Here’s how the chargeback process works:

Customer Raises a Dispute: If a customer spots an unauthorised charge or is unhappy with a product/service, they can contact their bank to raise a chargeback request.
Bank Reviews the Case: The issuing bank checks the complaint to see if it qualifies for a chargeback, verifying claims like fraud or service issues.
Merchant Is Alerted: If valid, the bank informs the merchant via their payment provider and the payment is temporarily reversed.
Merchant Submits Proof: The merchant can respond with evidence—like invoices, delivery records, or emails—to prove the transaction was genuine.
Final Review & Decision: The bank examines all details and decides whether to return the funds to the merchant or keep the refund with the customer.
Financial Outcome: If the merchant loses, they face not only lost revenue but also chargeback fees. Misuse by customers can also lead to penalties.

While chargebacks protect buyers, they also highlight the importance of transparent transactions for businesses.

Common Reasons for Chargebacks

Chargebacks are becoming a frequent issue for businesses in India’s fast-growing digital payments space. Knowing the common causes can help merchants reduce losses and protect their reputation. Here are some major reasons why chargebacks occur:

Fraudulent or Unauthorised Transactions: Payments made without the cardholder’s consent—often due to stolen card details—are flagged as fraud and lead to chargebacks.
Non-Delivery of Goods or Services: If a customer doesn’t receive what they paid for—due to shipping delays or service interruptions—they may raise a chargeback.
Duplicate Billing: Accidentally charging a customer twice for the same transaction often results in a dispute.
Product or Service Not as Promised: If the quality doesn’t match expectations or service is poor, and complaints go unheard, customers may demand a refund via chargeback.
Late Deliveries: Delays, especially for time-sensitive purchases, can lead to customer frustration and disputes.
Wrong Payment Details: Entering incorrect card or account information can cause processing issues and chargebacks.
Technical Errors: Glitches in the payment system—like failed confirmations or system errors—may trigger chargebacks if not handled promptly.

Tips to Prevent Chargebacks for Indian Businesses

Chargebacks can create serious disruptions for businesses accepting digital payments. However, with the right strategies in place, you can reduce these risks and protect your revenue. Here are some updated tips every Indian business should follow:

Ensure Clear Terms and Conditions: Make your pricing, shipping, cancellation, and return policies easy to find and understand. Avoid using complex language or fine print. Clear terms build trust and prevent misunderstandings that can lead to chargebacks.
Provide Efficient Customer Support: Chargebacks often arise when customers feel neglected. Offer fast, courteous, and effective support. Addressing concerns promptly can prevent issues from escalating into disputes.
Maintain Detailed Transaction Records: Always keep comprehensive records of orders, payment confirmations, invoices, customer communication, and delivery proofs. These documents are invaluable in defending against chargebacks if they occur.
Use Secure Payment Gateways: Partner with reliable payment gateways that offer advanced fraud protection, such as 3D Secure and tokenisation. These tools protect your business from unauthorised transactions and help ensure compliance.
Identify High-Risk Transactions: Monitor suspicious activities, like large orders from new customers or mismatched addresses. Flag these for manual verification to minimise risk.
Implement Clear Refund and Return Policies: Make sure your return and refund policies are visible and easy to understand before checkout. This transparency reduces the likelihood of disputes.
Track Chargeback Trends: Regularly analyse chargeback data to identify patterns and problem areas, like specific products or regions. Use this insight to adjust your processes and reduce future risks.
Bonus Tip: Use Tools like Easebuzz DRS: For businesses handling high transaction volumes, tools like Easebuzz Dispute Resolution System (DRS) can simplify chargeback management. It automates dispute handling, reducing fraud-related losses.

How to File a Chargeback in India: A Step-by-Step Guide

Have you been charged for a transaction you didn’t authorise or faced problems with a purchase? Don’t worry — you can file a chargeback and get your money back through your bank. Here’s how:

Step 1: Review Your Card Statement

Start by reviewing your credit or debit card statement. Look for any unauthorised or incorrect transactions. Make a note of the date, amount, and merchant details.

Step 2: Contact the Merchant First

Before approaching your bank, reach out to the merchant directly. In most cases, they are willing to resolve the issue or issue a refund to avoid chargebacks.

Step 3: Raise a Chargeback Request with Your Bank

If the merchant doesn’t respond or refuses to help, get in touch with your card-issuing bank. Inform them about the charge you want to dispute and request a chargeback.

Step 4: Provide Transaction Details

When you contact your bank, provide all relevant details — transaction date, amount, merchant name, and a clear reason for disputing the charge.

Step 5: Bank Reviews Your Request

Your bank will assess whether the chargeback complies with guidelines under the RBI or card network rules (Visa, Mastercard, RuPay, etc.).

Step 6: Submit Proof If Required

The bank may ask for proof, such as receipts, email communication, or screenshots. These will support your claim and help speed up the process. Step

7: Wait for the Final Decision

Chargebacks typically take a few weeks to resolve. Stay in touch with your bank, and you will be notified about the outcome. If successful, your money will be refunded.

Remember, there’s a limited window (45–120 days) to file a chargeback. Act promptly to protect your money!

Hidden Costs of Chargebacks Every Indian Business Should Know

Chargebacks are a major concern for businesses in today’s fast-paced digital world. They’re not just about losing sales—there are several hidden costs that can negatively impact both your finances and reputation. Here’s how chargebacks can affect your business:

Chargeback Fees: Each chargeback can lead to a fee ranging from ₹200 to ₹600. This is charged by your payment processor and acquiring bank to cover the administrative costs of investigating and resolving the dispute.
Reputational Damage: Frequent chargebacks can signal problems to both customers and platforms. Negative reviews, reduced trust, and a tarnished reputation can make it harder to attract new customers, especially in a marketplace where feedback is crucial for buying decisions.
Revenue Loss: When a chargeback occurs, you lose the original transaction amount, and you may also incur additional costs, such as refunding the customer, shipping losses, and overhead costs for fulfilling the order—hitting your bottom line hard.
Long-Term Business Impact: A chargeback ratio above 1% can put your merchant account at risk. Payment processors may raise transaction fees, withhold funds, or even suspend your account, disrupting your ability to accept payments.

Pro Tip: Stay proactive by monitoring chargebacks and using secure, PCI-compliant platforms like Easebuzz to reduce these risks and safeguard your business’s growth.

How to Dispute a Chargeback: A Merchant’s Guide to Representment

Chargebacks are essential to protect customers, but at times, they may be raised incorrectly or fraudulently. If you’re a merchant who feels a chargeback is unjust, you can challenge it via representment. Here’s a simple, updated guide to help you navigate the chargeback dispute process:

Step 1: Notify Your Acquiring Bank

Immediately inform your acquiring bank of your intent to dispute the chargeback. This kicks off the representment process.

Step 2: Complete the Dispute Form

Your bank will provide a chargeback dispute form. Ensure you fill it out accurately, including transaction details like ID, date, amount, and your reason for disputing the chargeback.

Step 3: Gather Strong Evidence

Provide clear evidence to back your case. This may include:

Proof of delivery or service completion
Invoices or receipts
Communication with the customer (emails, chats)
Signed agreements or terms & conditions
Any other relevant transaction documents

Solid evidence strengthens your position.

Step 4: Write a Rebuttal Letter

Craft a professional letter detailing why the chargeback is incorrect. Use the letter to present your evidence logically and clearly.

Step 5: Meet the Deadline

Ensure all forms and documents are submitted on time—typically within 7 to 14 days. Missing the deadline can result in an automatic loss.

Step 6: Wait for the Decision

Once your bank reviews the case, it will forward it to the issuing bank. If your representment is accepted, the funds will be returned. If new evidence arises, the dispute may go into another round.

Conclusion

While chargebacks are important for customer protection, they can hurt your business if not managed properly. To avoid losses:

Understand common chargeback reasons
Maintain clear records
Communicate openly with customers
Respond promptly to disputes

Working with solutions like Easebuzz DRS (Dispute Resolution System) can make chargeback management simpler and more efficient. With the right tools and a proactive approach, you can safeguard your revenue and ensure smoother operations.

FAQ's

Why do chargebacks occur?

Chargebacks can happen for several reasons:

Fraudulent or unauthorised transactions
Customer disputes or dissatisfaction with the product/service
Errors in billing or delivery by the merchant
Technical issues during payment
Failure to cancel a subscription or recurring charge

Chargeback vs Refund – What’s the difference?

A refund is processed voluntarily by the merchant when a customer requests to return the product or cancel a service.
A chargeback, on the other hand, is initiated by the customer’s bank when the customer disputes a transaction. It is enforced through the payment network, and merchants have to provide evidence to contest it.

Can businesses prevent chargebacks?

While chargebacks can’t be entirely prevented, businesses can certainly reduce their frequency. Here are a few key practices:

Maintain clear communication and transparent policies
Deliver high-quality customer service
Use fraud detection tools like Address Verification System (AVS), KYC Verification Suite, and CVV checks
Offer easy and visible refund options
Keep proper transaction records and proof of delivery

How can businesses reduce fraud-related chargebacks?

To minimise chargebacks due to fraud, businesses should:

Implement AVS and CVV verification
Use 3D Secure (like OTP-based authentication)
Monitor suspicious or high-risk transactions
Avoid processing unusually large or repeat orders without verification

Is there a time limit to raise a chargeback?

Yes, there is a time window. Generally, customers have up to 120 days from the transaction date to initiate a chargeback. However, in some exceptional cases (such as recurring payments or delayed delivery), this period can extend up to 540 days.

Are there any fees for chargebacks?

Yes. Merchants are usually charged a chargeback fee, which may range between ₹100 to ₹10,000, depending on the payment provider and the number of disputes. Repeated chargebacks can also lead to penalties or even account termination by the payment processor.