Chargeback basics
Chargeback vs refund: what is the difference?
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A refund is money the merchant chooses to send back, while a chargeback is money the cardholder's bank takes back after a dispute.
Chargeback Ledger puts it simply: a refund keeps the problem between you and your customer, and a chargeback hands it to the banks. Both return money to the buyer, but a chargeback adds a fee, staff time, and a mark against your account that a refund never does.
Is a refund or a chargeback cheaper for a merchant?
A refund is almost always cheaper. With a refund, you return the sale amount and the matter ends. With a chargeback, you lose the sale amount, pay a processor fee, spend staff time on evidence, and add to the chargeback ratio that networks and processors watch.
Processor chargeback fees run $20 to $50 per dispute, and the all in cost averages about $110 once lost merchandise, shipping and staff time are counted. That is why a fast, friendly refund process is one of the best chargeback defenses a store can have.
Chargeback vs refund, side by side
| Question | Refund | Chargeback |
|---|---|---|
| Who starts it? | The merchant, usually at the customer's request | The cardholder's bank, after the cardholder disputes |
| Who controls the money? | The merchant | The issuing bank |
| Extra fee? | Usually no dispute fee | Processor fee, typically $20 to $50 |
| Affects your ratio? | No | Yes |
| How long? | Typically 3 to 7 business days after approval | Weeks to a few months to resolve |
How long does a refund take?
Refund timing, plainly
A card refund typically takes 3 to 7 business days after approval to reach the customer. Part of that time sits with the customer's bank, not the merchant. Telling customers this up front, in the refund confirmation email, prevents the anxious phone call to the bank that can turn a refund into a duplicate chargeback.
When should a merchant refund before a dispute starts?
Refund early when the customer has a fair complaint and the cost of arguing is higher than the order:
- The item arrived damaged or not as described.
- The order shipped late or went to the wrong address.
- The customer was charged twice or after cancelling.
- A subscription renewed and the customer asks to cancel right away.
Once a chargeback has been filed, do not send a separate refund on your own. That can mean paying twice. Follow your processor's dispute process instead.
Common questions
Short answers here. See all questions in the FAQ.
- Should I refund instead of fighting a chargeback?
- If a customer asks for a refund before filing a dispute, refunding is usually cheaper. A refund costs you the sale amount, while a chargeback adds a fee, staff time and a mark on your ratio. Once a chargeback has been filed, refunding separately can mean paying twice, so follow your processor's guidance.
- What is a chargeback?
- A chargeback is a reversal of a card payment that the cardholder's bank forces after the cardholder disputes the charge. The bank pulls the money back through the merchant's processor while the dispute is reviewed. Unlike a refund, the merchant does not choose it, and the merchant usually pays a chargeback fee on top of losing the sale.
- Who controls the money in a chargeback?
- The issuing bank does. Once a dispute is filed, the issuer reverses the funds and the merchant's processor debits the merchant's account, often before the merchant has had a chance to respond. If the merchant contests and wins, the funds come back. If not, the reversal stands and the chargeback fee is usually kept.
- What is a chargeback fee?
- A chargeback fee is what your processor charges you for handling each dispute, whether or not you win. Processor fees typically run $20 to $50 per dispute. The fee comes on top of the reversed sale, so a $30 order can cost several times its value once the fee, shipping and staff time are added.
- How long do chargebacks last?
- A typical dispute takes several weeks to a few months from filing to final decision. The cardholder filing window is commonly 120 days, the merchant then has a short deadline to respond, and the issuer decides. Disputes that go to a second cycle or to arbitration take longer. Your processor sets the exact deadlines you must meet.
- Can buyer's remorse cause a chargeback?
- Yes. A customer who regrets a purchase may file a dispute instead of using your return process, especially if returns look slow or hard. Clear, easy to find refund and cancellation policies reduce this, because a customer who can get a quick refund from you has little reason to call their bank.