A chargeback is a payment reversal initiated by a customer's bank — the bank takes the disputed amount from the merchant and returns it to the cardholder, pending the merchant's response. Unlike a refund (which you control and initiate), a chargeback is initiated by the bank and you have a limited window to dispute it with evidence.
Chargebacks cost merchants more than the disputed amount. Beyond the transaction value, each chargeback carries a fee from your payment processor (typically $15–35 or ₹1,200–₹2,800 per incident), consumes staff time preparing the dispute response, and counts against your chargeback ratio — the metric payment processors use to decide whether to continue serving your account.
Types of Shopify chargebacks
True fraud chargebacks: A stolen card was used on your store. The legitimate cardholder disputes a transaction they did not authorise. These are unwinnable disputes if the card was genuinely stolen — you will lose the money and the merchandise. Prevention (via fraud scoring) is the only defence.
Friendly fraud chargebacks: A legitimate customer places an order, receives the product, then disputes the charge. Common reasons: they do not recognise your business name on their statement, a family member made an unauthorised purchase, or they decide to dispute rather than going through your return process. These are winnable if you have proof of delivery and communication.
Item not received (INR): Customer claims they never received the order. May be genuine (carrier failed to deliver) or fraudulent (customer received it but wants a free product). Winnable if you can prove successful delivery with tracking and signature.
Item not as described (INAD): Customer claims the product was significantly different from what was advertised. Most commonly a legitimate complaint, but also used fraudulently. Hard to dispute without photographic evidence of what you shipped.
Why Shopify merchants lose chargeback disputes
Win rates for merchant chargeback disputes in ecommerce average 30–40%. This means merchants lose the majority of disputes they file. The primary reasons:
Insufficient delivery evidence: "Delivered" status in your shipping carrier's tracking is not sufficient alone. Banks require more specific evidence: the delivery timestamp, the delivery location, and ideally a signature or photograph of delivery. Without this, "item not received" disputes are very difficult to win.
Late dispute responses: Chargeback response windows are strict — typically 7–20 days from notification depending on the card network and processor. Missing the deadline automatically forfeits the dispute.
Incomplete or disorganised evidence: Banks review dozens of dispute responses per day. A disorganised response — screenshots pasted into an email, without context or clear argument — is less persuasive than a structured package that clearly establishes each required element: order details, payment confirmation, shipping and delivery proof, customer communication history.
Wrong evidence for the dispute type: Different chargeback reasons require different evidence. An INAD dispute requires product description evidence and photographs. An INR dispute requires delivery confirmation. Submitting delivery evidence for an INAD dispute does not address the bank's actual question.
Chargeback prevention strategies
Use fraud scoring on every order: Most true fraud chargebacks can be prevented by not fulfilling high-risk orders. Fraud Heatmap scores every order using 12 signals. If the score indicates high fraud risk, hold the order for verification before shipping. The cost of not fulfilling a high-risk order (one lost sale) is significantly lower than the cost of a fraud chargeback (product + shipping + chargeback fee + staff time).
Use clear, recognisable billing descriptors: Many "friendly fraud" chargebacks happen because customers do not recognise the merchant name on their statement. Set your billing descriptor (the name that appears on statements) to something customers will recognise — ideally your store or brand name, not your legal entity name. Contact your payment processor to update this.
Make refunds easier than chargebacks: A customer who finds it easy to request a refund directly from you has less reason to initiate a chargeback. Visible return policy, easy refund request form, and fast refund processing all reduce the incentive to dispute through the bank instead.
Capture delivery confirmation: For orders above ₹5,000, require signature on delivery. For all orders, use a carrier that provides photo-on-delivery (Delhivery, Shiprocket premium services). The delivery photograph is your strongest evidence in INR disputes.
Document everything at the time of shipping: Photograph packaged orders before dispatch for high-value items. Keep screenshots of the original product listing at the time of the order for potential INAD disputes. This evidence is difficult or impossible to reconstruct after the fact.
Building a winning chargeback dispute response
A strong dispute response package for a "not received" chargeback should include:
- Order summary: Date, amount, items ordered, customer name and address
- Payment confirmation: Confirmation that the card was charged and the transaction was not disputed at the time
- Shipping confirmation: The shipment tracking number and carrier
- Delivery confirmation: Tracking showing delivered status, timestamp, delivery location, and photograph of delivery if available
- Signature proof: POD signature from carrier if obtained
- Communication history: Any customer emails, chat messages or order confirmations sent to the customer's email address
- Fraud score: Fraud Heatmap's scoring report for the order — shows the risk assessment at the time of fulfilment decision
Fraud Heatmap's chargeback evidence builder automates assembling this package. When a chargeback notification arrives, open the original order in Fraud Heatmap and generate the dispute package — it pulls all available data into a formatted, bank-ready document.
Keeping your chargeback ratio safe
Visa and Mastercard monitor your chargeback ratio monthly. The threshold is 1% of transactions or 100 chargebacks per month. Exceeding this ratio puts you in a monitoring programme, followed by potential account restrictions. Keep your ratio below 0.5% as a safe operating target.
Calculate your ratio: (chargebacks in the current month ÷ transactions in the prior month) × 100. If your ratio approaches 0.8%, act immediately: review your fraud scoring thresholds, check whether a specific product or promotion is generating abnormal dispute rates, and contact your payment processor proactively to explain the situation and demonstrate your remediation plan.