Common pitfalls and official sources
Chargebacks and dispute fees for Canadian merchants: costs, process and prevention
What a chargeback costs a Canadian merchant beyond the lost sale, how the dispute process works, evidence to keep, and practical ways to reduce disputes.
A chargeback happens when a cardholder disputes a transaction with their card issuer and the issuer reverses it. For the merchant, the cost is usually the amount of the sale (taken back from your deposits), a chargeback fee charged by your processor whether you win or lose (an illustrative $15 to $35), the goods or service already provided, and staff time to respond. Too many chargebacks can lead to higher pricing, a reserve on your deposits, or account closure. Most disputes can be reduced with clear billing descriptors, receipts, delivery proof, and fast refunds when a customer asks.
This guide is part of the pitfalls and official sources section. Fees and examples are illustrative.
How the dispute process works
- The cardholder disputes a charge with their issuer: for fraud, goods not received, goods not as described, a cancelled service still billed, a duplicate charge, or a processing error.
- The issuer raises a chargeback through the network, and your processor debits the amount from your account and notifies you. Sometimes it starts with a retrieval request asking for transaction documents.
- You respond within the deadline set by your processor (often short, because the network deadlines are fixed) with evidence.
- The issuer decides. If your evidence is accepted, the funds are returned to you. If not, the chargeback stands. Further stages may exist under network rules, sometimes with extra fees.
Deadlines and reason codes are set by each network. Your processor's merchant guide is the practical reference.
The real cost of one chargeback
Illustrative: an online clothing store sells a $120 order, which is later disputed as "not received".
| Cost | Lost dispute | Won dispute |
|---|---|---|
| Sale amount reversed | $120.00 | $0 (returned) |
| Chargeback fee (illustrative) | $25.00 | $25.00 |
| Original processing fee (2.9% + $0.30) | $3.78, usually not refunded | $3.78 |
| Staff time, 30 minutes at $25/hour | $12.50 | $12.50 |
| Cost compared with an undisputed sale | $161.28, and the goods ($55 to the store) are usually not recovered | $41.28 |
Even a won dispute costs money. That is why prevention matters more than winning.
Chargeback ratios and their consequences
Networks and processors monitor your chargeback ratio (disputes as a share of transactions). Above thresholds set in their rules, a merchant may face monitoring programmes with fees, higher pricing, a reserve on deposits, or termination. Ask your processor what thresholds apply and how they are measured. See settlement holds, reserves and payouts.
Evidence to keep
| Dispute type | Evidence that helps |
|---|---|
| Fraud (card present) | Chip or tap transaction record; receipt |
| Fraud (online) | Authentication result, address and security code checks, IP and device data, previous orders from the customer |
| Not received | Tracking with delivery confirmation; signature for high-value orders |
| Not as described | Product description and photos at time of sale; return policy accepted at checkout; correspondence |
| Cancelled recurring payment | Terms accepted, cancellation policy, record of no cancellation request |
| Duplicate or incorrect amount | Transaction logs, refund records |
Prevention that works
- Make your business recognisable on the cardholder's statement. Ask your processor what descriptor appears, and include a phone number or website if allowed.
- Give receipts with your business name, contact details and refund policy.
- Refund promptly when a customer asks and the request is reasonable: a refund costs less than a chargeback.
- Online: use the fraud tools and authentication available through your gateway; ship with tracking; avoid shipping to addresses that do not match on high-risk orders. See online payment gateway fees.
- Card present: use chip or tap rather than keying in the card number whenever possible. Keyed transactions usually carry higher fraud liability and higher fees.
- Subscriptions: send renewal reminders, make cancellation easy, and stop billing immediately on cancellation.
- Train staff on refund and exchange rules.
Chargeback fees in your quote
When you compare processors, list the chargeback fee, any retrieval request fee, whether fees are charged on won disputes, and any monitoring programme fees. These belong in the comparison alongside rates; see comparing processor quotes. Under the Code of Conduct, all fees must be disclosed in the agreement's disclosure of fees, and new or increased fees require 30 to 60 days' notice.
Friendly fraud and customer disputes
Some disputes are made by real customers who do not recognise a charge, forgot a purchase, or prefer a chargeback to contacting you. A clear descriptor, a reminder email, and a visible contact method reduce these. If a customer contacts you first, resolve it directly.
When to get help
If disputes rise quickly, you suspect organised fraud, or your processor threatens to close your account, speak to your processor's risk team, report fraud to the Canadian Anti-Fraud Centre and police where appropriate, and get advice on your contract.
FAQ
Can I refuse a chargeback?
You can contest it with evidence through your processor, within the deadline. The issuer decides under network rules.
Does a chargeback affect my credit score?
Not directly, but a high chargeback ratio can affect your processing terms and ability to get an account.
Are chargebacks possible on Interac debit?
Debit disputes follow the debit network's rules, which differ from credit card chargebacks. Ask your processor how Interac disputes and refunds are handled.
Sources
- FCAC: Accepting card payments — how card payments work and merchant rights
- Financial Consumer Agency of Canada — disclosure of fees under the Code
- Canadian Anti-Fraud Centre — reporting fraud
- Canadian Centre for Cyber Security — security guidance for small businesses
