What is chargeback?

Chargebacks are not just a matter of reimbursement - they are a complex financial, legal and operational process that affects the reputation and profitability of any partner. Understanding its mechanisms, costs and oversight rules under programmes run by International Payments Organisations, such as the Visa Acquirer Monitoring Program (VAMP), is key to mitigating risk and maintaining compliance with payment organisation requirements.

What is chargeback?

Chargeback is a refund procedure initiated by the customer's bank (issuer) when the cardholder disputes a transaction. It can result from:

fraud, e.g. a cardholder has received counterfeit goods or a transaction has been made with his/her stolen card,
an error on the part of the merchant, e.g. the cardholder was charged more than the purchase was made, or the transaction was billed twice,
customer dissatisfaction (product not as described, no delivery).

Each chargeback has a code. reason code)), which identifies the cause of the dispute - e.g. unauthorised transaction, product not received, double charge. Understanding these codes allows you to better analyse the source of the problem.

Importantly, the chargeback procedure only applies to payments made with payment cards (Visa, Mastercard) - it is not available for credit transfers, BLIK payments or electronic wallets.

Pros:

Chargeback is a form of consumer protection, which increases customer confidence in card purchases. As a result, a partner that accepts card payments can expect higher conversion rates.
The dispute mechanism allows honest sellers to defend themselves against unfounded complaints - if they have evidence of the transaction, they can recover the funds.
The dispute mechanism allows honest sellers to defend themselves against unfounded complaints - if they have evidence of the transaction, they can recover the funds.
The systems of International Payment Organisations, e.g. Visa, provide transparency and a clear structure to the procedure, with defined deadlines and rules.

Disadvantages:

The process is formal, multi-stage and often time-consuming - requiring the partner to prepare documentary evidence.
Each chargeback generates operating costs and fees, regardless of the outcome of the dispute.
Excessive chargebacks may affect the relationship with the Acquirer - exceeding Visa's supervisory thresholds may result in additional requirements under the VAMP programme or even risk termination of the relationship.

The chargeback process involves several actors, each with a specific role in dealing with the dispute:

Cardholder - initiates a chargeback by reporting a doubt or complaint about a transaction to his/her bank (issuer), e.g. if he/she does not recognise the charge, has not received the goods or believes he/she has been cheated.
Issuing bank - verifies the validity of the customer's claim and, if it deems it justified, initiates the chargeback procedure by forwarding the claim to the payment organisation.
Payment organisation (e.g. Visa, Mastercard)) - provides the infrastructure and rules for settling disputes between parties. It is the one that defines the reason codes, deadlines and stages of the proceedings.
Clearing bank / Payment service provider (Acquirer) - Represents the partner in the chargeback process. He receives the notification from the payment organisation, forwards it to the merchant and helps prepare the documentation and defence arguments.
Partner (Seller / Merchant) - is the entity that accepted the card payment. It has the right to provide evidence that the transaction was correct (e.g. proof of delivery, invoice, system logs, communication with the customer).

The entire process is therefore based on the cooperation of these five participants - from the initiation of the complaint by the customer to the final resolution of the payment organisation.

How does the chargeback dispute process work?

For Visa and Mastercard, the dispute process is similar, although each organisation has its own system and operational rules.

In both cases, the procedure involves several basic steps:

initiation of a dispute by the partner's client
notification of a dispute by the customer's bank,
Acquirer partner notification,
the opportunity for the partner to provide evidence,
possible arbitration proceedings if the parties fail to reach an agreement.

At each of these stages, the partner can count on the support of its Acquirer - it is the payment service provider that acts as an intermediary between the shop and the card organisation. The Acquirer supports in analysing the cause of the dispute, advises on the required documentation and is responsible for formally submitting the response to Visa or Mastercard.

The main difference between the organisations is that Visa uses a more automated and uniform process, with shorter response times, while Mastercard allows for more intermediate steps and the possibility of so-called cooperation between the parties even before a formal dispute.

In both cases, the organisation's arbitration decision is final and the losing party bears the cost of the proceedings.

Costs of chargebacks - not just the lost transaction

Many partners do not realise that the cost of a single chargeback is much more than the amount of the transaction returned. The total cost includes:

Amount of reimbursement - funds returned to the client.
Chargeback fee - for each complaint.
Operating costs - the time and resources of the team needed to handle the dispute.
Reputational risk - Too many disputes can result in a loss of the bank's confidence and a reduction in its ability to process cards.

The role of VAMP in chargeback management

The International Payments Organisations continuously monitor the level of chargebacks and reported fraud, analysing data at both Acquirer and individual partner level - especially those exceeding certain transaction thresholds. This means that as the business grows and the number of transactions increases, so does the responsibility to keep disputes and fraud levels low. Both Visa and Mastercard run their own oversight programmes that assess partners' compliance with security and payment processing quality requirements. The Acquirer plays a key role in this - it is the Acquirer who should monitor risk indicators, inform partners when they are approaching acceptable thresholds and work with them to implement corrective actions to maintain compliance with the payment organisations' requirements.

For Visa, the Visa Acquirer Monitoring Program (VAMP) monitors chargeback and fraud rates in the wallets of each Acquirer's partners. Visa analyses, among other things:

the ratio of the number of chargebacks to the number of transactions,
share of fraudulent transactions in total sales volume.

If a partner exceeds the limits, his Acquirer is obliged to:

implementations corrective action plan,
more frequent reporting to Visa,
and, in extreme cases, even to the suspension of Visa card processing.

How to minimise the risks and costs of chargebacks?

Use clear and recognisable names on extracts - Many chargebacks can be avoided if the customer recognises the name of the shop.
Ensure a clear returns and contact policy - customers are more likely to report a problem directly rather than through the bank.
Monitor chargebacks daily - A rapid response can prevent further disputes from escalating.
Analyse VAMP data and reports - help detect risk problems early.
Ensure complete responses to disputes - reliable documentation often determines a favourable outcome.
Work with Acquirer, in the event that the customer initiates the chargeback process.
Ensure quality of service - deliver goods and services on time, respond to cardholder complaints.

Summary

Chargeback is not just an incident - it is a warning signal that something in the payment process or customer service needs improvement.

Understanding the principles of the Visa and Mastercard dispute process, total costs and the requirements of supervisory programmes allows partners not only to reduce financial risk, but also to improve the quality of the entire sales process.

It is worth looking at chargebacks not as a penalty, but as an indicator of operational quality. A partner that monitors, analyses and responds builds a safe and sustainable sales model in line with requirements and industry best practice.

If you have questions about the chargeback process, dispute rules or want to learn how to effectively reduce the risk of disputes in your business - please contact our team. We will be happy to help you implement best practice and maintain full compliance with payment organisation requirements.