Chargebacks: Why They Happen and How to Answer One

Peneu Editorial Team · 28 September 2026 · 13 min read

Cover for a merchant guide to chargebacks: the process, the evidence and prevention

A chargeback happens when a customer goes to their bank to dispute a card payment, instead of coming to you for a refund. The bank takes the customer's side provisionally, the money is pulled back from you through the card network and your payment provider, and you get a notice with a deadline. If you can prove the customer got what they paid for, you may get the money back. If you can't, or you don't reply in time, it stays with the customer.

Most merchants experience chargebacks as something that happens to them. It helps to see the process as a structured argument with a deadline: the customer's bank makes a claim with a reason attached, and you win or lose on evidence that matches that reason. Everything below follows from that.

Chargeback, refund, reversal: which is which

These three get mixed up constantly, and the difference decides who starts the process and who controls the outcome.

Our Refund API guide covers refunds and reversals in depth. This article is about the third row.

Refund vs reversal vs chargeback
	Who starts it	Why	Who decides
Refund	You, the merchant	You agree the customer should get money back	You
Auto-reversal	The customer's bank or the payment system	The payment failed after the debit	RBI's deadlines apply; no one decides
Chargeback	The customer, through their card issuer	The customer disputes the payment	The issuer, under card network rules

The life of a chargeback

The details vary by card network and by provider, but the shape is the same everywhere:

The timelines at each stage come from the card network's rules and your provider's own processing, and they're short. Your provider tells you the deadline on each notice. Treat it as fixed: a late response usually counts as accepting the chargeback.

If you reply with evidence and the issuer still sides with the customer, some cases can go to further rounds, sometimes called pre-arbitration and arbitration, where the network itself decides. These later stages can carry fees, so they're worth it only when your evidence is strong and the amount justifies it.

How a chargeback moves

Customer disputesCalls or writes to their card-issuing bank
Issuer files itPicks a reason and sends it through the card network
You're debited and notifiedYour acquirer or payment aggregator passes it on, with a deadline
You respondAccept it, or send evidence that answers the stated reason
DecisionThe issuer reviews; unresolved cases can escalate further

Reading the notice

Before you gather anything, read the notice properly. The layout differs by provider, but you'll usually find the same handful of fields, and each one tells you something:

What a chargeback notice tells you
Field	What to do with it
Case or dispute ID	Quote it in everything you send; it's how the response is matched
Original payment reference and date	Find the order in your system before anything else
Amount disputed	Check whether it's the whole payment or part of it; partial chargebacks happen
Reason code and description	Decides what evidence can win (see below)
Response deadline	Put it in the calendar with a buffer; late means lost
Masked card details	Useful for spotting repeat disputes from the same card

Why customers dispute

Card networks use detailed reason codes, but they fall into a handful of families. Knowing the family tells you what evidence matters.

The last row deserves attention because it's the most avoidable. Some disputes start with a customer who genuinely doesn't recognise the name on their statement. Make sure the name your provider shows on card statements is one your customers would recognise.

Chargeback reason families and what they mean
Family	What the customer is saying	Typical trigger
Fraud / unauthorised	"I didn't make this payment."	A stolen card, or a family member using the card
Not received	"I paid and got nothing."	Delayed or lost delivery, a service that didn't happen
Not as described	"What arrived isn't what I paid for."	Wrong item, damaged goods, misleading listing
Cancelled or credit not processed	"I cancelled or returned it and wasn't refunded."	A slow refund, or a cancellation policy the customer didn't see
Processing error	"I was charged twice, or the wrong amount."	A duplicate charge, a retry that went through twice
Not recognised	"I don't know what this is."	A billing name on the statement that doesn't match your brand

Evidence that wins, by kind of business

The single biggest mistake in responding is sending generic proof. A tracking number doesn't answer a fraud claim, and a signed terms-and-conditions page doesn't answer a "not received" claim. Match your evidence to the reason family and to how you deliver.

Evidence that tends to answer each reason, by business type
Business type	Not received	Not as described	Fraud / unauthorised
Physical goods	Courier proof of delivery to the address on the order, ideally with a signature, photo or delivery OTP	Product listing as it appeared at purchase, photos before dispatch, return policy and whether a return was offered	Customer's order history, delivery to a known address, prior undisputed orders from the same card or account
Digital goods and software	Download or access logs with timestamps and IP addresses, account activity after purchase	Product page as shown at purchase, usage showing the product worked	Login history, device and account consistency, prior purchases
Services and bookings	Booking confirmation, attendance or check-in records, messages confirming the service	Service description and terms the customer accepted, messages about the issue	Booking made from the customer's account, communication with the named customer
Subscriptions	Access and usage logs for the billed period	Plan description at sign-up, renewal reminders sent	Mandate or subscription set up by the customer, previous paid renewals

Friendly fraud and true fraud

Not every fraud claim is fraud. Sometimes a real cardholder disputes a payment they made, because they forgot it, a family member used the card, or they'd rather not deal with a return. This is often called friendly fraud. The evidence is different from true fraud: for true fraud you show the payment was properly authenticated and nothing about the order looks unusual; for friendly fraud you show the customer's own history with you, the delivery to their usual address and any later contact from them about the order.

Where you can tell the two apart, treat them differently. A pattern of true fraud points at gaps in your risk checks. Friendly fraud points at your descriptor, your confirmation messages and how easy your refunds are to get.

Subscriptions: the renewal dispute

Recurring payments produce a particular dispute: the customer forgot they'd subscribed, or thought they'd cancelled. Your evidence here is the sign-up record, any reminder sent before the renewal, usage after the previous payment, and your cancellation path. Keep the record of any renewal reminder you sent and of how the customer could cancel, because that is usually what the dispute turns on.

How to write the response

A reviewer at the issuer reads many responses a day. Make yours easy to decide:

One trap to avoid: don't send a separate refund for an order that's already under chargeback without checking with your provider. The chargeback has already pulled the money back, and a refund on top can return it to the customer twice.

Read the reason on the notice before anything else. Everything you send should answer that reason and nothing else.
Write a short summary at the top: what was bought, when, how it was delivered, and why the claim doesn't hold, in three or four sentences.
Attach the evidence in the order your summary mentions it, labelled clearly, with order IDs and payment references visible.
Include your policy only if the reason is about cancellation, returns or the description, and show that the customer saw it before paying.
Check the deadline your provider gave you, and submit a few days early. A strong response sent late counts for nothing.

When not to fight

Winning a chargeback takes time, and some aren't worth it. A simple way to decide:

Accept it if the customer is right: the item didn't arrive, you charged twice, or the refund really was never processed. Fighting a valid claim wastes time and annoys the customer's bank.
Accept it if your evidence doesn't answer the reason. A partial response rarely wins.
Fight it when you have clear evidence that matches the reason, and the amount, including any later-stage fees, justifies the effort.
Look for the pattern either way. Five "not received" chargebacks from one courier route is a logistics problem. A run of fraud claims from new accounts is a risk-checking problem.

UPI disputes work differently

Chargebacks in the strict sense are a card-network process. UPI has its own dispute system, run through the payer's bank and UPI app and NPCI, and RBI's framework for online dispute resolution requires UPI apps to let customers raise disputes from inside the app. A common UPI dispute is a failed payment, where the money comes back through an auto-reversal within RBI's deadlines rather than through a merchant decision. Our guide to payments that fail after a debit covers those timelines.

When a UPI dispute is about the purchase itself (the customer says the goods never arrived), your acquiring bank or payment aggregator may ask you for proof, much as with a card chargeback. Keep the same evidence habits for UPI orders as for card orders.

Fraud claims and the customer's own protections

Fraud chargebacks move fast for a reason. Under RBI's customer-protection rules for unauthorised electronic transactions, a customer who reports one quickly can have zero liability, and the bank must credit the disputed amount to the customer's account within 10 working days of the report while it investigates. The customer's bank then looks to recover the money, and for a card payment the chargeback is how it does that.

RBI's 2025 rules for payment aggregators also say plainly that the aggregator's arrangements leave customers' chargeback rights unaffected. Whatever your agreement with your provider says, it can't take those rights away.

What a chargeback costs you

The disputed amount is only the first line. Depending on your provider there may be a handling fee per chargeback, fees for later stages, and the staff time to respond. Providers also watch each merchant's chargeback rate, and a rising rate can lead to a review of your account. None of these fees are fixed by regulation, so read your agreement and ask your provider for the exact figures.

Chargeback debits usually show up in your settlement as an adjustment, sometimes before you've read the notice. Watch the adjustments in your settlement report, and make sure your reconciliation treats a chargeback as its own event rather than as a missing payment. The reconciliation capability keeps disputes, refunds and payments on one record across providers.

A simple routine for your team

Chargebacks get lost between support, finance and operations. A short routine fixes that:

Name one owner who receives every notice, however it arrives: email, dashboard or settlement report.
Log each case the day it arrives: case ID, order ID, amount, reason, deadline and the decision to accept or fight.
Keep an evidence folder per order type, so the proof for a typical case can be gathered in minutes.
Review the log monthly by reason, product and delivery partner. The patterns tell you what to fix upstream.
Reconcile outcomes: every won case should come back as a credit in settlement, and every lost one should close the order in your books.

Keeping chargebacks rare

Prevention is mostly about the cheaper paths being easier than the dispute. The refund guide's chapter on chargebacks covers the basics: quick refunds when the customer is right, a recognisable statement name, delivery evidence for every order, and visible cancellation terms. Three more habits help:

Answer customers fast. A quick reply to "where is my order?" often heads off a dispute before the customer thinks of calling their bank.
Send a confirmation after every payment and a notice before every subscription renewal. Surprise charges become disputes.
Make your refund process visible, with an expected date. A customer who knows the refund is on its way rarely calls their bank.

Go deeper

Official sources

RBI — Reserve Bank of India (Regulation of Payment Aggregators) Directions, 2025 (15 Sep 2025)Paragraph 18(h): customers' chargeback rights remain unaffected; refunds and reversals routed through escrow.
RBI — Customer Protection: limiting liability in unauthorised electronic banking transactions (6 Jul 2017)Zero or limited liability for prompt reporting; credit to the customer within 10 working days of reporting.
RBI — Online Dispute Resolution (ODR) System for Digital Payments (6 Aug 2020)Dispute mechanisms for digital payments, including in-app dispute raising for UPI.

Last reviewed 28 September 2026. Examples, amounts and screens marked illustrative are not Peneu figures.

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