Taking plastic is a smart move for the vast majority of merchants, and a necessity for any company operating online. Some key reasons to facilitate the use of credit cards include mitigating your business risk, selling your products online, and making your accounting processes drastically easier.
However, allowing customers to pay with a card comes with an increased risk of chargebacks, the bane of high risk merchants in every industry. And the rules changed significantly in 2025: Visa retired its old dispute monitoring programs and replaced them with VAMP, a single program with new math and new thresholds that every merchant should understand.
Need to reduce chargebacks as soon as possible but not interested in the heavy lifting? We’ve got you covered.
Read on to learn exactly what a chargeback is, the different types, how the 2026 monitoring programs work, and how you can prevent disputes from causing trouble for your business.
Table of Contents
- What Is a Chargeback?
- What Are the Different Types of Chargebacks?
- How Does the Chargeback Process Work?
- What Are Visa VAMP and the 2026 Monitoring Programs?
- Why Are Chargebacks Bad for Everyone?
- What Are the Main Types of Credit Card Fraud?
- How Can You Prevent Chargebacks?
- Final Thoughts
What Is a Chargeback?
Simply put, a chargeback is the return of funds from a merchant to a customer who used a credit or debit card to pay for that merchant’s products or services. They usually occur as a result of disputes lodged by customers, particularly ones who feel that they’ve been subject to fraud or unsatisfactory service.
Chargebacks are handled by the “issuing bank”, the institution which approved and furnished the customer with their credit card. When the chargeback occurs, the funds from the transaction are removed from your account and credited to the customer’s card.
It’s imperative that you keep your chargeback ratio down, because you may get penalized or fined by your processor. Under Visa’s VAMP rules (explained below), excessive disputes can trigger escalating fees, and in the worst case your processor may simply decide your business isn’t worth dealing with and cut ties with you entirely.
What Are the Different Types of Chargebacks?
Card networks classify every dispute with a “reason code.” Visa consolidated its codes under Visa Claims Resolution into four categories (Fraud, Authorization, Processing Errors, and Consumer Disputes), while Mastercard maintains its own chargeback guide with codes ranging from “Goods or Services Not Provided” to “Cardholder Does Not Recognize.”
Although there are a variety of reasons why customers might request one, most can be categorized into the broader categories below.
Merchant Error
This category includes both technical problems and human error. The system might have charged the customer twice for the same transaction, or an employee may have entered an extra number to the price of the merchandise.
Issues with recurring transactions can also fall into this category. Customers may believe that they’ve already cancelled their subscription with your business, but are still being billed for your product or service.
Product Quality
In other cases, a chargeback may not be the fault of the merchant, but of another intermediary such as the shipping and handling company. Items that customers order may never arrive, or they may be different from how they were described at the time of purchase.
Fraud
Legally, customers are not responsible for most purchases that have been made as a result of identity theft or other fraudulent activity. This means that as the other party in the transaction, your business may be on the hook for the missing money.
To better catch instances of fraud, it’s important to understand your position as a merchant in the chargeback cycle.
How Does the Chargeback Process Work?
The chargeback cycle involves five key parties:
- The merchant
- The cardholder / consumer
- The issuing bank (the cardholder’s bank)
- The acquiring bank (the merchant’s bank)
- The card network (Visa / Mastercard)
And if arbitration is played out in its entirety, chargebacks have six main stages:
Stage #1: The consumer initiates a chargeback
This is done through the consumer’s bank, generally initiated on the bank’s website by the consumer. In order to begin the process, they must fill out a form and select a “reason code” for why they’ve chosen to file a chargeback.
Common reasons include:
- Merchandise/Services Not Received
- Not as Described or Defective Merchandise/Services
- Counterfeit Merchandise
- Misrepresentation
Stage #2: The consumer’s bank takes a close look at the case, and proceeds accordingly
There are two things that can happen at this stage:
- The bank finds the chargeback to be suspicious or invalid.
Result: It’s voided, and nothing else will happen (no need to proceed to the next stage). - The bank views the chargeback as legitimate.
Result: The merchant’s bank will be notified, and money will be credited back to the consumer.
Stage #3: The merchant’s bank takes a close look at the case, and proceeds accordingly
If the merchant’s bank can prove the chargeback is not legitimate, they will handle everything for the merchant themselves.
If they can’t prove anything, they will move forward with the chargeback, and take money from the merchant’s account.
Stage #4: The merchant finally gets to see the case, and proceed however they see fit
If the chargeback is legitimate, the merchant must accept it and move on with life (and hopefully work on not getting similarly penalized in the future).
However, if the merchant has proof that the chargeback was fraudulent, they can build a case and hand it off to their bank for a second look. Under Visa’s Compelling Evidence 3.0 rules, evidence of two prior undisputed transactions from the same customer (matching device or account data) can defeat many friendly-fraud disputes before they ever count against you.
Stage #5: The merchant’s bank initiates “representment”
All evidence gathered by the merchant will be taken by their bank, and used as the final case refuting the chargeback.
Stage #6: The consumer’s bank makes the final decision
There are two ways the chargeback cycle comes to a close:
- The evidence in favor of the merchant is sufficient to clear the merchant of blame, whereby the consumer gets charged again for the original amount. (Note that chargeback fees and other associated costs will not be refunded to the merchant)
- The evidence is not good enough, and the chargeback is finalized.
What Are Visa VAMP and the 2026 Monitoring Programs?
This is the part of the chargeback landscape that changed most recently, and the part most older guides get wrong.
On April 1, 2025, Visa retired its legacy monitoring programs (the Visa Dispute Monitoring Program and Visa Fraud Monitoring Program) and consolidated them into a single program: the Visa Acquirer Monitoring Program (VAMP). Key facts every merchant should know:
- One combined ratio. VAMP counts reported fraud (TC40) and non-fraud disputes (TC15) together, divided by your settled transactions. Fraud and disputes are no longer tracked in separate programs.
- The merchant threshold is 1.5%. A merchant whose combined VAMP ratio reaches 150 basis points is classified as “Excessive,” which brings per-dispute enumeration fees and remediation requirements. Acquirers themselves are monitored at a much lower level, which means your processor is watching your ratio long before Visa is.
- Resolved disputes don’t count. Disputes resolved through Rapid Dispute Resolution (RDR), Cardholder Dispute Resolution Network (CDRN) alerts, or defeated by Compelling Evidence 3.0 are excluded from the VAMP ratio. Prevention tools now directly protect your standing, not just your revenue.
Mastercard runs its own Excessive Chargeback Program with similar logic, and in 2024-2025 rolled out First-Party Trust, a data-sharing program aimed at stopping friendly fraud before it becomes a chargeback. Mastercard projects chargebacks will cost merchants $42 billion a year by 2028, which is exactly why the networks are tightening the screws.
What this means in practice: the old “keep it under 1%” rule of thumb is now only half the story. Your fraud reports and your disputes are added together, your processor sees the combined number, and enrolling in alert and resolution programs actively shrinks it. If your business runs hot on disputes, a chargeback prevention program is no longer optional.
Why Are Chargebacks Bad for Everyone?
A chargeback is a valuable tool for consumers when used honestly. However, the frivolous and fraudulent use of chargebacks has the power to make them negative for all parties involved.
Here are five reasons chargebacks are no fun for merchants or the consumers who initiate them:
1. They waste time and money
A chargeback can take weeks to months before coming to a resolution. Between the lost sale, the lost product, the chargeback fee, and the staff time spent fighting it, industry analyses consistently find that every dollar of disputed transactions costs merchants several times that amount.
2. They can lead to closed bank accounts
Not just for merchants, either. Consumers who commit credit card fraud (intentionally or not) can get their cards closed, hurting their credit score in the process.
3. They can hurt a consumer’s credibility
Sometimes, chargebacks are unavoidable for consumers. However, consumers who build reputations as frequent users (and potential abusers) of the chargeback system will be viewed with greater skepticism by their banks. Programs like Mastercard’s First-Party Trust now share purchase data with issuers specifically to identify repeat false claims. When these consumers actually need help, it might be harder to come by.
4. They can lead to higher product/service prices
Merchants who constantly need to deal with chargebacks will inevitably have to raise their prices, hurting their business as well as the pocketbooks of their valued customers.
5. They can close a business
Excessive chargebacks will result in a merchant getting their processing capabilities frozen or canceled altogether. Under VAMP, an “Excessive” label also brings escalating per-dispute fees. Consumers should think twice before resorting to this process, and first go to the merchant to solve their issues.
Both you and your customers have a vested interest in keeping chargebacks as infrequent as possible. However, we live in an imperfect world, and sometimes they’re necessary.
Even worse, some people try to game the system at the expense of honest businesses. In the next section, we’ll go over the different types of credit card fraud you may encounter as a merchant.
What Are the Main Types of Credit Card Fraud?
True Fraud
True fraud occurs when a customer becomes the victim of identity theft due to unauthorized use of their card. This can occur for several reasons:
- The card data may have been exposed during a data breach at a retailer or service provider.
- The card may have been lost or stolen, and subsequently discovered by a malicious actor.
- The card data may have been captured using a “skimmer,” a small device that thieves place over the credit card slot in places such as gas stations and ATMs.
- The customer may have entered their card data into a malicious website or provided it to a scammer over the phone, increasingly via AI-assisted phishing.
Regardless of the reason, true fraud can be devastating to your business, and the merchant usually bears the loss for card-not-present transactions.
Friendly Fraud (First-Party Misuse)
While the name “friendly fraud” sounds like an oxymoron, it’s a very real phenomenon, and card networks now consider it the fastest-growing category of disputes, which is why Mastercard built its First-Party Trust program around it.
It occurs when customers file a dispute without intent to defraud the merchant, but also without being in the right. For example, a customer may request a chargeback because they don’t recognize a transaction on their credit card statement. However, the transaction isn’t actually fraudulent: it may have been a family member using the card, or the customer may have simply forgotten about a recurring charge on their account.
Chargeback Fraud
While true fraud occurs as a result of identity theft by a third party, chargeback fraud occurs when customers themselves are the ones attempting to defraud the merchant.
By filing a credit card chargeback request, some customers hope that they’ll be able to get their funds back while also holding onto the product or service that they’ve already received. They may also want to purge a purchase that they regret from their card history.
During chargeback fraud, customers will provide a number of illegitimate reasons for requesting a chargeback:
- The customer did not receive the product or service
- The product or service was not as described, damaged, or defective.
- The customer had already requested to cancel a recurring transaction.
How Can You Prevent Chargebacks?
Most chargebacks occur when customers feel unsatisfied with the product or service that they’ve received from your business. In order to keep your clients happy, protect your VAMP ratio, and defend against fraud, there are a number of steps that you can take:
Step 1: Use a clear descriptor for transactions
If customers don’t recognize the name of the merchant, they’ll be much more likely to file a chargeback. Make sure that the transaction’s description helps customers recall the purchase.
Step 2: Be proactive in customer service
Customers who are dissatisfied with their product or service are also more likely to file a chargeback. Reach out to customers who leave bad reviews or who complain about your company on social media, and encourage them to contact you before their card company.
Step 3: Keep records
Don’t rely on your payment processor alone to help you fight fraudulent chargebacks. By keeping your own records of transaction times, dates, amounts, device data, and delivery confirmations, you can win more representments, and under Compelling Evidence 3.0, a documented history with a repeat customer can invalidate a friendly-fraud dispute outright.
Step 4: Enroll in alert and resolution programs
Rapid Dispute Resolution (RDR) and CDRN alerts let you refund or resolve a dispute before it becomes a chargeback, and resolved disputes are excluded from your VAMP ratio. For high-volume or high-risk merchants, these programs are the single most direct way to protect your merchant account.
Step 5: Use the right payment processor
Not all payment processors are created equal. Some have extra features to help prevent fraud or to cover losses in the event of a chargeback, including AI-based fraud screening and built-in alert integrations. By looking for these merchant-friendly processors, you can reduce your liability.
Final Thoughts
Credit card chargebacks are a necessary evil to ensure that customers are defended against identity theft and unauthorized use of their card information. However, you need to make sure that your business refunds customers with legitimate complaints too. It’s a tenuous balance, and with fraud and disputes now counted together under VAMP, managing it well matters more than ever.
Want to learn how to reduce your risk, in terms of not just chargebacks but other payment problems merchants encounter these days? Set up an appointment with our team of experts, and we’ll connect you with both credit card and chargeback solutions that will help you grow and protect your business.
