Online business is growing rapidly today, and merchants are continually seeking ways to make payments smooth and secure for their customers. We use tools like payment gateways, payment links, payment buttons, and even payout systems to keep things easy. However, along with all these benefits, there is also a risk that every merchant needs to understand chargebacks.
So, what is a chargeback? Why does it happen? And how can you protect your business from it in 2025? In this complete guide, we will explain everything so that you can run your online business without confusion.
A chargeback is when a customer asks their bank or card company to reverse a payment that was already made to you. In simple terms, the money that came into your account goes back to the customer because of some issue.
For example:
Imagine you are selling clothes online. A shopper purchases a shirt, completes payment via your gateway, and you deliver the order. Later, the customer tells their bank, “I did not get my order” or “I did not authorise this transaction”. The bank investigates and may withdraw the money from your account and return it to the customer. This process is called a chargeback.
Key point:
A chargeback is not the same as a refund — in a refund, you return the money directly to the customer; in a chargeback, the bank takes the money after a complaint.
Common Reasons for Chargebacks
1. Fraudulent Transactions
Fraud happens when stolen or unauthorised card details are used for payments. The real cardholder disputes the charge, leading to a chargeback against the merchant.
2. Product or Service Issues
Customers often raise disputes when they receive damaged items, late deliveries, or wrong products. Poor service or unmet expectations can also trigger chargebacks quickly.
3. Technical Errors in Payment Gateway
Sometimes technical problems cause double-billing, failed refunds, or wrong amounts being charged. These errors make customers raise chargebacks, even though the payments were genuine.
4. Unclear Billing Descriptions
When customers see an unfamiliar business name on their bank statement, they may assume fraud. This confusion leads them to file chargebacks against merchants unnecessarily.
5. Buyer’s Remorse
Some customers simply change their minds after purchase and use the chargeback system to get their money back, even if the product was fine.
How Is a Chargeback Different from a Refund?
Many people think that a chargeback and a refund are the same thing, but they are not.
- Refund:
The customer contacts you directly, and you return the money voluntarily. It is handled between you and the customer through your payment gateway or payout system. - Chargeback:
The customer bypasses you and directly goes to their bank. The bank then pulls the money from your account, often without your permission, after their investigation.
So, a refund is easier to handle, but a chargeback can be complicated and may involve fees.
The Chargeback Process – Step by Step
To understand how a chargeback works, let’s go step by step:
1. Customer Dispute
The customer contacts their bank and claims they should not be charged.
2. Bank Review
The bank checks the complaint and, if it seems valid, they start a chargeback process.
3. Temporary Deduction
The bank deducts the disputed amount from your account temporarily.
4. Merchant Response
You get a chance to provide evidence like invoices, delivery proof, or transaction details from your payment gateway.
5. Final Decision
The bank decides whether to return the money to you or to the customer.
How Chargebacks Affect Merchants
Chargebacks can be stressful for merchants. Here are some effects:
1. Financial Loss
A chargeback not only takes away your sale amount but also adds extra fees, leading to direct money loss and reduced profits for your business.
2. Time Loss
Handling a chargeback consumes valuable time as you collect documents, prepare proofs, submit them, and continuously follow up with banks or payment gateway providers.
3. Business Reputation
Frequent chargebacks make customers and banks think your business is risky or untrustworthy, which can harm long-term growth and reduce overall customer trust.
4. Account Issues
Too many chargebacks may force your payment gateway to hold payouts, delay settlements, or even suspend your merchant account, affecting your business operations badly.
How to Prevent Chargebacks in 2026
While chargebacks cannot be completely avoided, there are ways to reduce them.
a) Use a Reliable Payment Gateway
Choose a payment gateway with strong fraud detection tools. It should also allow you to send payment links safely and verify the customer’s details before the transaction.
b) Provide Clear Product Information
Always give accurate descriptions, sizes, colours, and images so customers know exactly what they will receive.
c) Offer Easy Refund Options
If a customer is unhappy, make it simple for them to request a refund through your payment button or website form instead of going to the bank.
d) Keep Delivery Proof
For physical products, use tracking numbers and keep proof of delivery. This helps when you need to show evidence in a chargeback dispute.
e) Send Payment Confirmation Emails
After a purchase through your payment link or checkout page, send a confirmation email with all details.
f) Use Clear Billing Descriptions
Make sure the name that appears on the customer’s statement is familiar to them. If your store name is different from your company name, mention it clearly in the invoice.
How to Win a Chargeback Dispute
If you receive a chargeback notice, do not panic. You can fight it if you have the right documents.
Steps to follow:
1. Check the Reason Code
Banks give a code explaining why the chargeback was filed.
2. Collect Proof
This may include order receipts, tracking details, email communication, and payment gateway logs.
3. Respond Quickly
There is usually a deadline to submit your documents. Missing it means losing the case automatically.
4. Use Your Payment Gateway’s Help
Many providers have teams that assist merchants in handling disputes.
5. Follow Up
Keep in touch with the bank or payment processor until you get a final result.
Future of Chargebacks in 2026
With the growth of e-commerce and UPI payments in India, chargebacks are becoming more common. But at the same time, payment gateway companies are upgrading their fraud prevention systems.
In 2026, we can expect:
1. AI-based fraud detection
Smarter AI systems will monitor transactions in real time, helping payment gateways detect suspicious activities early and protect merchants from fraudulent payments and chargebacks.
2. Instant dispute notifications
Merchants will receive instant dispute alerts from banks or payment gateways, allowing them to act quickly, submit evidence on time, and reduce the chances of losing money.
3. Simpler payout settlements
After disputes are resolved, payout processes will become faster and more transparent, ensuring merchants get their money on time without unnecessary delays or confusion from payment providers.
4. Better buyer education
Customers will be guided to request refunds directly instead of filing chargebacks, creating smoother communication between buyers and merchants and reducing unnecessary financial losses for businesses.
Quick Tips for Merchants
1. Always keep communication open with customers.
Clear and open communication builds trust, reduces complaints, solves doubts early, and helps prevent disputes from turning into chargebacks.
2. Train your support team to solve problems quickly.
Well-trained support staff resolve issues fast, satisfy customers, reduce frustration, and stop unnecessary chargebacks that harm your online business.
3. Regularly review chargeback reports in your payment gateway dashboard.
Checking chargeback reports in your payment gateway dashboard highlights fraud patterns, ensures early action, and keeps your business secure.
4. Avoid suspicious orders that look too good to be true.
Suspiciously large or unusual orders may indicate fraud, so always verify details carefully before accepting payment and shipping products.
5. Always opt for safe payment links and buttons with OTP authentication.
Secure payment links and buttons with OTP verification protect against fraud, keep transactions safe, and maintain merchant trust.
FAQs ( Frequently Asked Questions)
Q: Can I avoid chargebacks completely?
No, but you can reduce them by using fraud detection tools and clear communication.
Q: Does every payment gateway in India support chargeback handling?
Most reputable ones do, but check before signing up.
Q: How long does a chargeback take to resolve?
It can take 30–90 days, depending on the bank and payment processor.
Q: Do chargebacks affect my payout cycle?
Yes, some payment gateways may delay payouts if you have many chargebacks.
Q: Is a refund better than a chargeback?
Refunds are indeed quicker, cost-effective, and help retain customer confidence.
Conclusion
A chargeback is not just a refund – it is a legal process where the bank takes back money from you after a customer complaint. For merchants in 2026, understanding chargebacks is very important to protect profits and maintain a smooth payment experience.
By using trusted tools like secure payment gateways, payment links, payment buttons, and reliable payout systems, you can reduce the risk of chargebacks and handle them better when they happen.
Ultimately, preventing issues is always wiser than fixing them later. Keep your customers happy, provide clear information, and use technology wisely – and you will find that chargebacks become a rare problem instead of a regular headache.