Costly mistakes, disputes and official sources
Chargebacks for Australian merchants: how they work, what they cost, how to respond
The chargeback process from the merchant's side, common reasons, time limits set by card network rules, the true cost of a dispute, and evidence that helps you win.
A chargeback happens when a cardholder disputes a payment with their bank and the bank reverses it through the card network. Your provider takes the amount back from your account, usually adds a chargeback fee, and gives you a short deadline to respond with evidence. If you do not respond, or your evidence does not meet the network's rules, you lose the sale, the goods or service and the fee. The rules, reason codes and time limits are set by each card network (eftpos, Mastercard, Visa, American Express and others) and applied through your merchant agreement, not by an Australian statute, so read your provider's chargeback guide. Prevention and good records are cheaper than winning disputes.
This guide is part of the overview of payment processing mistakes. Figures are illustrative.
How a chargeback runs
- Customer disputes a payment with their card issuer, for example because they say goods did not arrive or they did not authorise it.
- Issuer raises the chargeback through the network, using a reason code.
- Your provider debits the disputed amount from your settlement or account, often with a fee, and notifies you.
- You respond within the provider's deadline with evidence (sometimes called representment), or accept the chargeback.
- Issuer reviews the evidence. It may accept it and reverse the chargeback, or continue the dispute.
- Further stages such as pre-arbitration or arbitration by the network may follow, often with higher fees.
Customers can usually raise disputes for a period after the transaction or the expected delivery date. Network rules commonly allow up to around 120 days for many reasons, but the limits vary by network and reason and can be longer or shorter. Your own response window is usually much shorter and is set by your provider.
Common reasons and what to keep
| Reason category | Typical situation | Evidence that helps |
|---|---|---|
| Fraud or unauthorised | Stolen card used online or card details misused | 3-D Secure authentication, chip or contactless records, delivery to the cardholder's address, IP and device data |
| Goods or services not received | Delivery not made or late | Tracking with proof of delivery, signed receipt, service records |
| Not as described or defective | Customer says the item differs from the description | Product description and photos at time of sale, returns policy, communications |
| Cancelled recurring payment | Subscription billed after cancellation | Terms accepted at sign-up, cancellation records, notice given |
| Processing error | Duplicate charge, wrong amount, late presentment | Transaction logs, refund records |
| Credit not processed | Refund promised but not made | Refund record and date, or why no refund was due |
The real cost of a chargeback
Illustrative: an online store loses a $120 dispute.
| Cost | Amount |
|---|---|
| Sale reversed | $120.00 |
| Goods not recovered (cost price) | Included in the lost sale |
| Chargeback fee | $25.00 |
| Original processing fee not refunded (1.5%) | $1.80 |
| Staff time to respond (30 min at $40/h) | $20.00 |
| Total | $166.80 |
If it wins, the business recovers the $120 but often not the fee or time. Ten such disputes a month would cost around $1,668, which can exceed the processing fees themselves for a small store. See online payment gateway fees.
Monitoring programmes and account risk
Networks run monitoring programmes for merchants with high dispute or fraud rates, measured as a ratio of chargebacks to transactions. If your ratio is high, your provider may charge extra fees, require a reserve, delay settlement or close your facility under the agreement. Payment facilitators can act quickly under their terms. Keep your ratio low and talk to your provider early if a spike happens, such as after a delivery failure.
How to prevent chargebacks
- Clear descriptor: make sure the business name on customers' statements is recognisable.
- Clear policies: refunds, returns, delivery times and subscription cancellation shown before payment.
- Authentication: use chip and PIN or contactless in person, and 3-D Secure online where your provider supports it; under network rules this can shift fraud liability to the issuer.
- Delivery proof: use tracked delivery for higher-value orders and keep proof.
- Fast refunds: refund promptly when you agree a refund is due; a customer who gets a refund has no reason to dispute.
- Customer contact: respond quickly to complaints; many chargebacks start as unanswered emails.
- Recurring billing: send reminders before renewals and make cancelling easy.
Responding well
- Read the reason code and respond to that reason, not generally.
- Send concise evidence: invoice, proof of delivery, communications, authentication results, policy accepted.
- Meet the deadline. Late responses are usually lost automatically.
- Track outcomes by reason so you can fix the cause.
Consumer law still applies
Separate from chargebacks, customers have rights under the Australian Consumer Law, including consumer guarantees. A chargeback decision does not change those rights, and a fair resolution with the customer is often the cheapest outcome. Your obligations to consumers and your rights against the provider are different questions.
Frequently asked questions
Can I refuse to refund and wait for a chargeback?
You can choose to defend a dispute, but if the customer has a valid claim, refusing a refund can breach the consumer guarantees and lead to a chargeback plus fees.
Who decides a chargeback?
The issuer, under the network's rules, with possible escalation to the network. Your provider passes on your evidence but does not decide the outcome.
Can I complain if my provider handled a chargeback badly?
Yes. Complain to the provider first; if it is a member of the Australian Financial Complaints Authority and you are a small business, you may be able to take the complaint there. See official sources and complaints.
Sources
- Australian Competition and Consumer Commission — consumer guarantees, refunds and returns
- Australian Financial Complaints Authority — complaints by small businesses about member financial firms
- Australian Cyber Security Centre — reducing online fraud and scams
- Reserve Bank of Australia — card payments regulation
