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What is a Chargeback and How Can You Manage It Effectively

What is a Chargeback and How Can You Manage It Effectively
Businesses are increasingly relying on digital payments, as more consumers embrace card and mobile money payments. However, while digital payments offer convenience and efficiency, they also come with challenges like chargebacks, which can impact a merchant’s revenue and operations. This makes it critical for merchants to understand how chargebacks work and how to mitigate their impact.

What is a Chargeback?

A chargeback occurs when a cardholder disputes a transaction, prompting their bank to reverse the charge. Originally designed to protect consumers from fraud, chargebacks are now frequently used for various reasons, including customer dissatisfaction and processing errors. Understanding how chargebacks work and key strategies to prevent them is crucial for business owners.

Rahab Wanja, Network’s AFU Supervisor Operations, explains: “Chargebacks can be disruptive and costly to businesses, but with the right measures and customer engagement strategies, merchants can significantly reduce their occurrence and protect their revenue.”

Now that we understand what a chargeback is, let’s see how it compares a refund.

What is the Difference Between Chargebacks and Refunds?

Chargebacks and refunds both involve returning money to a customer, but they are fundamentally different processes. A refund is a voluntary transaction initiated by the merchant when a customer requests their money back, typically due to dissatisfaction with a product or service, a failed delivery or a billing error.
On the other hand, a chargeback is a forced reversal initiated by the customer’s bank when they dispute a transaction, often citing fraud, unauthorized use or unfulfilled services. Unlike refunds, chargebacks can lead to penalties for merchants, increased processing costs, and potential account restrictions if they occur too frequently.

How Chargebacks Affect Businesses

Chargebacks don’t just mean lost sales – they have broader implications for businesses, including:
  • Loss of revenue – Refunded transactions result in direct financial losses.
  • Operational costs – Managing disputes requires time, effort and resources.
  • Reputation damage – High chargeback rates can erode trust in a business.
  • Potential account restrictions – Excessive chargebacks may lead to penalties from payment processors or even account suspensions.

If you’re facing chargeback challenges, you’re not alone. A study by Riskified and Paladin Fraud surveyed over 300 chargeback managers worldwide to assess the scale of chargebacks and their impact on merchants. Key findings include:

  • Chargebacks are increasing, with 76% of chargeback managers reporting as many or more chargebacks year over year.
  • Merchants struggle to recover losses, with three in four recovering less than half of all chargebacks.
  • First-party fraud is a major concern, as over 73% of merchants say that at least 20% of chargebacks result from fraudulent claims by customers.
Merchants by Region
To minimize these negative effects, it’s essential to understand what causes chargebacks in the first place.

Common Causes of Chargebacks

Several factors contribute to chargebacks. Understanding these causes is the first step in preventing them.

1. Fraudulent transactions

These occur when a cardholder claims they did not authorize a payment, often due to stolen card details or unauthorized purchases.

2. Customer disputes

These types of chargebacks may be initiated if:

  • A customer did not receive the product or service.
  • The received product does not match its description.
  • A promised refund was not processed.

3. Processing errors

Technical or human errors such as duplicate charges or incorrect billing amounts can result in chargebacks.

4. Friendly fraud

Sometimes, customers file chargebacks on legitimate transactions, either forgetting they made the purchase or attempting to get a refund without returning the product.

How Chargebacks Work

When a customer initiates a chargeback – potentially up to 120 days after the transaction, the disputed funds are immediately withheld. The process then unfolds.
The customer’s bank withholds the transaction amount and notifies the merchant.

  1. The merchant has the option to either accept the chargeback or dispute it by providing supporting evidence (receipts, delivery confirmations, etc.). It’s advisable to respond as soon as possible when Network notifies you – delays weaken your case.
  2. Bank review: The customer’s bank assesses the merchants’ proof.
  3. If the merchant submits compelling evidence, the dispute is resolved in their favour. Otherwise, the chargeback stands, and the funds are returned to the customer.
  4. Pre-arbitration: If the customer disputes the merchant’s evidence, a second review begins.

  5. Arbitration: Still unresolved? The card network (for example, Visa or Mastercard) makes a final, binding decision. This stage comes with significant fees, e.g. for a Mastercard chargeback, expect a $150 filing fee, $250 admin fee, $150 withdrawal fee and $100 in technical fees. Acting quickly helps businesses avoid unnecessary losses.

    Quick responses help businesses avoid unnecessary losses

How to Manage Chargebacks

Minimize chargebacks on card and mobile money payments with these Network-backed strategies:

Provide clear communication

  • Use clear billing descriptors to prevent confusion.
  • Display refund and shipping policies on your site – ensure customers agree pre-purchase.
  • Send instant payment confirmations and digital receipts for transparency.

Enhance customer service and dispute resolution

  • Make refunds quick and easy to prevent disputes.
  • Share customer support details – let buyers reach you before their bank.
  • Maintain detailed transaction records for dispute resolution.
  • Resolve issues fast with Network’s dedicated support team on standby.

Leverage Network's expertise

  • Use fraud detection tools and AI-powered monitoring systems to detect suspicious activity.
  • Rely on DPO Pay’s portal rea l-time transaction reviews to prevent fraud.

Educate customers on digital payments

  • Inform your customers about how card and mobile money transactions work.
  • Promote secure payment practices and responsible purchasing behaviour.

As a payment service provider, Network plays a critical role in assisting merchants throughout the chargeback process. By partnering with Network, businesses in accross Africa can leverage real-time fraud monitoring, transaction reviews and expert support to effectively manage and reduce chargebacks. Implementing these strategies can significantly minimize the risk of chargebacks and safeguard your business’s financial health.

How to Resolve Chargeback Disputes

Chargebacks can impact your business but knowing when to accept or dispute them can help you manage your business effectively. Here’s what you need to consider:

When to Accept a Chargeback

If you recognize that a product or service was not delivered as agreed, it’s best to accept the chargeback. Doing so ensures transparency and maintains customer trust, though it means the refund will be deducted from your payout.

How to Dispute a Chargeback

If you have fulfilled the transaction, you can dispute the chargeback. Provide clear evidence, such as invoices, delivery confirmations, or proof of service, to support your case. A well-documented dispute increases the chances of the bank ruling in your favour and reversing the chargeback.

Evidence you’ll need to fight chargebacks

To win disputes, gather the right documents for card transactions. Here’s what Network recommends for different business types:

E-commerce & retail

  • Proof of shipment (e.g. DHL tracking).
  • Signed delivery receipt.
  • Customer order confirmation email.

To win disputes, gather the right documents for card transactions. Here’s what Network recommends for different business types:

  • E-commerce & retail
    Proof of shipment (e.g. DHL tracking).
  • Signed delivery receipt.
  • Customer order confirmation email.

Scenario: A boutique ships a dress paid via Visa card but faces a “not delivered” dispute. DHL tracking saves the day.

Hospitality

  • Booking confirmation.
  • Check-in records.
  • Signed cancellation policy.

Mandatory documents:

  1. Network authorization form: Printed and signed by the cardholder post-check-in to verify identity.
  2. Card statement/bank notification: Showing only the cardholder’s full name, last four digits, and Network charge (block other details). Or use bank SMS/email notification.
  3. Booking engine confirmation: From Booking.com/Expedia, if applicable.
  4. Cardholder ID: Copy of passport, ID card or driver’s license.
  5. Customer correspondence: Emails or WhatsApp chats.

Scenario: A hotel guest disputes a Mastercard payment for a stay. The signed Network Authorization Form and ID card copy prove the cardholder checked in, reversing the chargeback.

Transportation:

  • Ticket or booking ID.
  • Passenger manifest.
  • Terms of service acknowledgment.

Scenario: A taxi service faces a “no-show” claim on a card payment. The manifest and ticket ID via Network’s system win it back.

Educational services

  • Enrolment agreement.
  • Payment receipt from card transaction.
  • Course access logs.

Scenario: A online tutor proves a student accessed lessons paid by card, countering a “non-delivered” dispute.

Digital services:

  • User account activity (login timestamps).
  • Terms of use acceptance.
  • Subscription confirmation from card payment.

Scenario: A streaming service shows login proof via Network’s logs, shutting down a friendly fraud claim on a card charge.

Logistics & courier services

  • Delivery confirmation (photo or signature).
  • Shipping manifest.
  • Client contract tied to card payment.

Scenario: A courier’s photo proof via DPO Pay’s portal overturns a “lost package” chargeback on a card transaction.

Travel agencies & tour operators:

  • Itinerary receipt.
  • Booking terms signed by customer.
  • Proof of service (e.g., flight boarding pass linked to card payment).

Scenario: An agency uses a signed itinerary and boarding pass to beat a “cancelled tour” dispute on a Visa card.

Use a Reliable Payment Solution

One of the most effective ways to reduce chargebacks is by working with a PCI DSS Level 1 certified payment service provider like Network. PCI DSS (Payment Card Industry Data Security Standard) ensures that payment gateways in Ghana and globally meet the highest security standards to protect sensitive cardholder data.
Network offers robust fraud prevention tools, including:

By integrating secure payment solutions, merchants can significantly reduce fraudulent transactions and lower chargeback rates.

In Conclusion

Chargebacks are a significant challenge for businesses, but they can be managed effectively. By implementing secure payment solutions, maintaining transaction transparency, and enhancing customer service, merchants can minimize chargebacks and protect their business.
Partnering with a trusted payment service provider like Network further strengthens your security, ensuring a safer and more seamless payment experience for merchants and customers alike.
Got questions about chargebacks and refunds. Read our FAQs.

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