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A happy customer who got exactly what he was expecting from a product, and is ready to come back for more might be the ideal situation for every merchant, but it doesn’t always go this way. In fact, a lot of times merchants have to deal with unexpected issues, complaints, and returned items that will have to be re-packaged and sold again. All this costs businesses money. However, not every issue is the same – and sometimes, it is more serious than it seems. In this article, we will explain the main differences between chargebacks vs refunds, and what are the best ways to handle each one of them.


According to the Consumer Returns in the Retail Industry report published by Appriss, product returns and refunds for services cost US business more than $350 billion annually. This mind blowing number is affected primarily by the online retail industry – in comparison with brick-and-mortar stores, where the return rate is only 8.89%, at least 30% of all products ordered online are returned for different reasons.

The return policy is a statement stipulated by the merchant that he is willing to accept previously purchased items and refund the customer (fully or partially) when certain conditions are met. The exact return policy and conditions depend on each individual merchant, but generally, customers can ask for a refund in cases such as:

  • The purchased product arrived with damages or factory defects
  • The received item didn’t arrive as described on the website
  • The merchant shipped the wrong item
  • The purchase didn’t arrive on time, or it was no longer needed
  • In case of purchasing clothes, many times a piece of clothing is returned because it didn’t fit the customer the way he/she expected (or was the wrong size).

Because online shopping (usually) requires a payment before the delivery of the actual product, it can cause inconvenience for a lot of customers – especially when the product they received didn’t match their expectations. To reduce the risk for customers and encourage online shopping, the retail industry decided to implement return policies to ensure that clients can get their money back if they weren’t satisfied with the purchase.

Therefore, requesting a refund is a voluntary act initiated by the customer within the time frame stipulated in the return policy (it depends on the merchant, but usually within 14-30 days).


Despite having a lot of similarities that both end up with additional costs for the merchant, and probably an unhappy customer, one of the main differences of chargebacks vs refunds is the authority that deals with the issue.

When the customer asks for a refund, he does so by communicating his concerns directly with the merchant. In this case, the problem is either solved successfully for both parties, or it isn’t, but in both cases it’s an issue that remains between the customer and the merchant.

However, when a customer decides to file a chargeback dispute, the problem is taken to the issuing bank instead of the merchant, and it will be the card issuer to decide if the chargeback was legitimate or not, and if the purchase will be reimbursed to the customer.

Put simply, chargebacks are a form of customer protection that enables users (the weaker part in an ecommerce transaction) to file a dispute against the company to the issuing bank as a result from an unrecognized statement in their bank account.

Because the resolution of a private issue is taken to a third-party authority, chargebacks are extremely costly for businesses, and can cause a lot of damage to the health and the cash-flow of a company. In fact, having a high ratio of chargebacks (above 1% of all transactions) might even lead to the termination of your merchant’s account if not resolved on time.

It is important to explain that there are two types of chargebacks: legitimate and fraudulent. Legitimate chargebacks result from an unsuccessfully resolved refund issue between the merchant and the customer, in which the merchant didn’t want to return the money, or the return policies weren’t easily available to the customer, which caused him to file a chargeback instead.

However, not all chargebacks are legitimate; in fact, businesses have been observing a rising number of Friendly Fraud chargebacks in the past decade, in which a customer makes a purchase, consumes the product or service, and disputes the transaction claiming that he doesn’t recognize it. Disputes with malicious intentions cost merchants billions of dollars each year.

Chargebacks vs Refunds – can they happen at the same time?

Yes, they can. Sometimes, the customer will contact both the merchant and the issuing bank about the disputed transaction, and the merchant might approve the refund while the chargeback process is still going. This can happen when the merchant is not aware that the chargeback investigation has started, or when the customer contacts their bank when the promised refund for the purchase wasn’t processed immediately.

To avoid making a double refund, you can contact the issuer before reimbursing the purchase, and check the status of the chargeback process.

Dealing with disputes

While maintaining a low return rate depends on whether the merchant has implemented the best practices for ecommerce, chargebacks are a little bit more complicated. To learn how to handle them correctly, we recommend you to read our detailed articles on the topic:

As a Payment Gateway provider, we understand the importance of maintaining a low chargeback ratio, and minimizing the risk associated with a high volume of disputes. For this reason, we work closely with all of our clients to ensure that they are always implementing the best practices for dealing with chargebacks. For more information on the differences between chargebacks vs refunds and how we could help you handle them, do not hesitate to contact us.


Consumer Returns in the Retail Industry report

E-commerce Product Return Rate – Statistics and Trends