What is a chargeback?

A chargeback (also known as a payment dispute) is a process that allows a cardholder to dispute a charge on their scheme debit or credit card and have that charge refunded if their claim is successful. Typically the cardholder contacts their bank who reviews the transaction and if the reason for the dispute is valid, provides a temporary credit to the cardholder's account while the chargeback claim is being investigated.

What is the purpose of chargebacks?

Chargebacks are designed to increase customer confidence in scheme credit and debit card payments - especially when those payments are made online.

Customers can make a purchase knowing that the product or service will be provided as described by the merchant and that their purchase is protected from fraud. The risk of a chargeback acts as a deterrent to merchants who may be tempted to deliver sub-standard goods or services and helps merchants stay transparent.

Customers can't be expected to pay for something that was never delivered, charges that shouldn't have been made in the first place or refunds that were never issued.

Chargebacks are not the same as refunds. A refund happens when a cardholder contacts a merchant directly and asks for their money back. In some instances, the cardholder will need to return the goods and services in order to receive a refund.

Typically customers will raise a chargeback when they disagree with the payment that has been made on their card or they do not recognise the transaction on their statement. Customers are encouraged by their bank to contact the merchant in the first instance. If a dispute is unresolved in that manner, they are able to exercise their chargebacks rights.

Chargeback rules

The rules for chargebacks are set by the card schemes Mastercard®, Visa and UnionPay International. It's important to know that under no circumstances can merchants ask the cardholder to waive their chargebacks rights.

How the chargeback process works.


The cardholder contacts their bank and provides the transaction details.

The cardholder's bank investigates the claim, contacts the merchant's bank about the transaction and shares the details.

The merchant's bank contacts the merchant within 72 hours and asks them to provide details about the transaction within a set timeframe. Liability rests with the merchant to provide satisfactory evidence regarding the transaction. The merchant provides evidence to their bank.

The merchant’s bank makes a decision based on the evidence provided. If the merchant’s bank determines the cardholder’s claim meets scheme rules for a chargeback, the merchant is notified of the pending chargeback. If the merchant’s bank determines the claim does not meet scheme rules, the evidence is passed on to the cardholder's bank for consideration.

If the cardholder's bank accepts the evidence is satisfactory, the chargeback is resolved with no cost to the merchant.

If the cardholder's bank rejects the evidence or none is provided, the dispute amount may be charged back to the merchant's nominated bank account and will appear as a debit.

Either party may progress the case to arbitration where the card schemes involved will conduct their investigation and decide the outcome. This process can take several months.

Chargeback categories & reason codes.

Chargebacks fall into different categories and different reason codes. A chargeback reason code is used to identify the reason for the dispute. Each of the major card schemes have their own system of reason codes and these generally fall into the following categories:

  • Technical: Expired authorisation, insufficient funds or a processing error
  • Clerical: Duplicate billing, incorrect amount billed or refund never issued
  • Quality: Customer claims to have never received the goods as promised at the time of purchase or alleges the services delivered was sub-standard
  • Fraud: Customer claims they did not authorise the purchase.

Managing a payment dispute.

Your bank will contact you to let you know that a dispute has been raised by your customer. You can then choose to accept or challenge the chargeback. If you accept it, the dispute amount will be charged back to your nominated bank account and appear as a debit. If you decide to challenge it, your bank will request that you provide evidence that the customer's dispute is without merit. Each bank will have their own timeframes for you to provide this evidence.

How to reduce the risks of chargebacks.

Provide a dispute resolution channel

Encourage your customers to reach out to you in the first instance to discuss any grievances. You can do this by providing a 'disputes contact' in your terms and conditions.

Understand how pre-authorisation works

Pre-authorisation allows you to hold a specific amount of the cardholder's money until the goods or services have been delivered or provided. Prior to the first pre-authorised transaction, the possibility of incremental top-ups (an increase to the original pre-authorised amount) must be disclosed to the cardholder, and their acknowledgement must be recorded. Pre-authorisation is only valid for 30 days from the date the first pre‑authorisation was approved so if you haven't finalised payment within this time, there's a chance it may not be honoured.

Store customer communications

Ensure that any communication relating to your transaction is easy to access in the event of a dispute to support your case e.g. follow up a phone call with an email so that you have evidence in writing.

Embed robust business processes

You can't charge the customer for a process problem e.g. a staff member undercharged a cardholder by mistake and then manually processed the remainder of the payment without their explicit consent at the time payment was made.

Check your T&Cs

Your terms and conditions governing your sale/payment (including your return and refund policies) should be well structured, disclosed correctly and appropriately acknowledged by the cardholder before you take the payment.

Ensure your business is clearly named on the customer's bank statement

For example if your business is called 'John's Store' your bank descriptor should not be 'Sara's House'.

Have security checks in place to prevent fraud related chargebacks

Any unsecure transactions may be at an increased risk of fraudulent activity. Cardholders need only advise their bank that the transaction is not theirs to satisfy scheme rules. Make sure you're protected when accepting card payments online by enabling 3D Secure.

Things you should know.

The information on this page is intended as a guide only. We make no warranty or representation, express or implied, regarding the accuracy of any information, statement or advice contained on this page. We recommend you seek independent legal, financial and/or tax advice before acting or relying on any of the information on this page. All opinions, statements and analysis expressed are based on information current at the time of writing from sources which Westpac believes to be authentic and reliable. Westpac issues no invitation to anyone to rely on this material.

Mastercard® is a registered trademark and the circles design is a trademark of Mastercard International Incorporated.

Links to other sites are provided for convenience only and Westpac accepts no responsibility for the availability or content of such websites.