What is a chargeback dispute?

A chargeback dispute is a process through which a merchant can combat illegitimate chargeback claims.

When a cardholder notices an unauthorized charge on their card, they can notify their card issuer and file for a chargeback, meaning they request a refund directly from the bank rather than the merchant. But in some cases, an individual files a chargeback on a purchase despite having authorized and received it. This chargeback abuse, often referred to as friendly fraud, or first-party fraud, accounts for about 50% of chargebacks, according to Riskified data. 

First-party fraud is often difficult to prevent, and the only way to retrieve lost revenue is to dispute suspected chargebacks. This requires merchants to provide compelling evidence (CE) that the cardholder did indeed authorize the purchase.

The chargeback dispute process is not limited to fraud-related chargebacks from unauthorized charges. When a merchant makes an error or fails to deliver quality goods or services, a dissatisfied customer may bypass customer service and file for a non-fraud chargeback, often under the reason code of item-not-received (INR) or item-not-as-described. By being proactive in addressing customer concerns and enhancing service quality, merchants can mitigate the risks associated with non-fraud-related chargebacks and avoid entering into dispute resolution.

What chargebacks cost merchants

Chargebacks allow consumers to dispute a transaction and request a reversal of funds through their issuing bank, typically when they believe a transaction was fraudulent, unauthorized, or the goods or services were not provided or failed to meet their expectations. 

Chargebacks carry direct and indirect expenses for merchants, including:

• Lost merchandise and shipping costs
• Bank and processing fees
• Labor for dispute management and investigation
• Potential loss of acquiring accounts and network fines
  

To mitigate these risks, merchants often deploy fraud prevention technology such as Riskified’s chargeback management system, Dispute Resolve, to both prevent unauthorized transactions and streamline chargeback dispute management. 

Not only are legitimate chargebacks costly to merchants, but fraudulent chargebacks are also a growing problem. In 2024, more than 73% of merchants surveyed shared that at least 20% of their chargebacks were first-party fraud — also known as “friendly fraud” — which occurs when a legitimate customer disputes a charge after receiving the purchased item. 

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How merchants dispute chargebacks

Merchants may formally dispute fraudulent chargebacks by providing sufficient and compelling evidence (CE) to disprove the cardholder’s claim, a process known as chargeback representment.

Merchants struggle to recoup costs, with three in four recovering less than half of all chargebacks, despite the operational costs and inefficiencies associated with dealing with them. 

Contesting a chargeback can help merchants recover lost funds and protect their reputations. But the dispute process can take weeks and requires detailed documentation such as delivery confirmations, CRM logs, and correspondence records.

Collecting and formatting CE manually takes an estimated 20–30 minutes per case. As a result, merchants typically dispute only those chargebacks that are clearly legitimate, supported by strong evidence, or involve high transaction values.

Despite these efforts, 75% of merchants recover less than half of their chargebacks, and nearly 60% leave more than 40% undisputed. Some merchants have even faced serial abusers who chargeback thousands of dollars in one calendar year. When is enough, enough?

The chargeback dispute process step-by-step

When a customer files a chargeback, the issuing bank determines whether or not it is justified. Once the chargeback is approved, the money is refunded to the cardholder, the charge is forwarded to the merchant by their acquiring bank, and the merchant must accept the loss. However, if a merchant believes the chargeback was issued incorrectly, they can choose to challenge it by providing evidence that proves the order was legitimate. This process is called dispute resolution.

There are five steps to the chargeback dispute process:

1. The cardholder files a chargeback
2. The issuing bank reviews the claim and, if it’s determined to be valid, sends it to the acquiring bank
3. The acquiring bank reviews the chargeback and, if it’s deemed valid, it will notify the merchant. If it’s deemed invalid, they will decline it and notify the issuing bank
4. The merchant reviews the chargeback and either accepts or files a dispute, supported with compelling evidence
5. If the evidence is deemed compelling, the issuing bank rejects the claim, and the customer is charged. If the evidence is deemed not compelling, the credit will be taken from the acquiring bank.

Operational challenges for online merchants

Managing chargebacks manually is resource-intensive and prone to error. Without automation, teams must reconcile data from multiple gateways, manually extract transaction details, and locate supporting documentation.

Further complicating matters, rules and timeframes vary by card network. Filing windows typically range from 7 to 30 days, and late submissions result in automatic forfeiture.

Chargeback dispute management software

Chargeback management software automates evidence collection, document formatting, and dispute submission, helping merchants efficiently manage high dispute volumes. Platforms such as Riskified’s Dispute Resolve centralize data across gateways, improve team productivity, and increase recovery rates. Customer data shows that Dispute Resolve can:

• Cut handling time from 30 minutes to under five
  
• Double the recovered revenue by improving throughput and accuracy
  
• Allow fraud teams to focus on complex investigations

Table 1: Five steps to streamline chargeback disputes

Prevent chargebacks at checkout	Preventing unauthorized transactions, account takeovers, and other types of payment fraud with a platform like Riskified can reduce overall chargeback volumes and identify transactions and identities that carry a high risk of chargeback fraud.
Address customer concerns	By being proactive in addressing customer concerns and enhancing service quality, merchants can mitigate the risks associated with non-fraud-related chargebacks and avoid entering into dispute resolution.
Centralize chargeback data	Centralizing chargeback sources and platforms into a single dashboard enables chargeback managers to more easily access, view, and act on chargebacks, as well as gather compelling evidence.  When integrated into your checkout flow, Riskified collects and enriches contextual data about a single order. If it comes back as a chargeback, that data can be used to compile the best evidence to win the dispute.
Automate chargeback management	Automation with machine learning optimizes chargeback management by reducing manual work and allowing teams to concentrate on higher-impact activities. Solutions like Riskified Dispute Resolve enable merchants to automate evidence gathering and submission, scaling revenue recovery without additional operational burden. By combining automation with machine learning, merchants can transform chargeback disputes from a recurring obstacle into a reliable source of recovered revenue.
Enable collaboration among issuers, merchants, and payment providers	Intelligence sharing between issuers and merchants can provide merchants with early warnings of impending disputes, enabling them to proactively issue refunds or prevent chargebacks. This collaboration enables merchants to identify disputes early, engage directly with customers, and resolve issues in ways that prevent chargebacks; saves merchants time, money, and reputational damage; and improves their standing with credit card issuers. Riskified integrates Ethoca alerts into its Control Center dashboard, streamlining merchants’ ability to take decisive action on chargeback alerts. Ethoca’s tools remain one of the most effective options for reducing disputes and staying in compliance with Visa’s monitoring thresholds.

With automated dispute management, Hotelogical achieves a 46% recovery rate in 40% less time 

The travel sector experiences one of the highest rates of first-party fraud, with half of travel merchants estimating their rate of abusive chargebacks to be above 40%.

False chargebacks can negatively impact Hotelogical’s brand image and reputation, as well as its revenue, so disputing them is vital. With bookings and chargebacks soaring during peak periods, they found their manual processes were unsustainable. By automating chargeback management with Riskified’s Dispute Resolve, they were able to process 5X more chargebacks while maintaining an outstanding 46% recovery rate.

Find out more about the state of today’s most common chargeback challenges and the future of chargeback management in “Chargeback challenges and what you can do about them.”

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