Chargebacks: how they work and how to reduce them
What a chargeback is, how it differs from a refund and a dispute, the most common reasons, and a practical plan to cut your rate without hurting conversion.
Pagnovo Team · 2026-07-31
Chargebacks are one of the quietest costs of selling with cards: you lose the product, lose the sale amount and still pay a fee. Worse — if your rate crosses certain thresholds, card networks can apply penalties or even terminate the merchant account.
What it is (and what it is not)
A chargeback is a purchase reversal requested by the cardholder directly to the issuing bank. The bank reverses the amount and then charges the acquirer, which charges the merchant.
Do not confuse:
| Term | Who starts it | How it resolves |
|---|---|---|
| Refund | The merchant | You return the money voluntarily |
| Cancellation | Merchant or customer, before settlement | Transaction is voided |
| Chargeback | The cardholder, via the bank | Dispute process with deadlines and evidence |
The difference matters: with a refund you control the situation; with a chargeback you are defending yourself.
The most common reasons
1. Third-party card fraud
Someone used a stolen card or leaked data. The legitimate holder disputes it. This is the costliest category and the most worrying.
2. Friendly fraud
The cardholder bought and then disputes, claiming they do not recognize the charge. Sometimes it is bad faith; often it is simply not recognizing the name that showed up on the statement.
3. Item not received or not as described
Logistics or expectation failure. Not fraud — an operational problem.
4. Duplicate charge or wrong amount
Technical error, frequently tied to missing idempotency in the integration.
5. Subscription not cancelled
The customer tried to cancel, could not (or could not find how) and went to the bank.
How to reduce — by cause
Attacking chargebacks with a single tool does not work. Each cause needs a different answer.
Against third-party fraud
- Anti-fraud scoring, combining rules and a statistical model
- 3-D Secure 2.0 on higher-risk transactions — besides cutting fraud, it shifts liability to the issuer in many cases
- Tokenization, never storing the full PAN
- Velocity checks (many attempts, same card, different cards on the same device)
⚠️ Beware of overdoing it: overly aggressive anti-fraud rules block good customers. The goal is not zero fraud — it is maximizing net profit (approvals minus losses).
Against friendly fraud
- Clear statement descriptor. If the customer bought from "Store X" and the statement says "PGTO*XYZ123", they will not recognize it. Configure a readable soft descriptor.
- Immediate confirmation email, showing the name that will appear on the statement
- Keep evidence: IP, device, access logs, signed proof of delivery
Against operational problems
- Tracking and proof of delivery
- Honest product descriptions and real photos
- Easy-to-find support. A lot of chargebacks are customers who could not reach you. Resolving in support is far cheaper than a dispute.
Against subscription issues
- Self-service cancellation (no phone call required)
- Pre-renewal notice, especially after a trial
- Charges with the same descriptor as the first purchase
The dispute process
When a chargeback arrives, you have a deadline — usually short — to present your defense (representment). What typically sustains a dispute:
- Proof of delivery with tracking (ideally signed)
- Access logs and IP consistent with the customer
- Communication history with the buyer
- Evidence of service usage (for digital goods)
- 3DS authentication record, if any
Organize this before you need it. Companies that only chase evidence after the notification lose most disputes.
The metric that matters
Track your chargeback rate = number of chargebacks ÷ number of transactions in the period. Card networks run monitoring programs with thresholds; crossing them triggers fines and mandatory monitoring. Stay well below your segment's limit and review monthly.
Also track the dominant reason: if 70% of your chargebacks are "I do not recognize this charge", your problem is descriptor and communication, not anti-fraud.
Pagnovo's Checkout includes real-time anti-fraud validation and tokenization, and our Fraud Prevention Policy details the controls we apply. Talk to our team.