Chargebacks and payment disputes: lifecycle, reason codes, VAMP and ECM thresholds

What is a chargeback and how is it different from a refund?

A payment dispute starts when a cardholder tells their bank that a charge is wrong: they do not recognise it, the goods never arrived, or the merchant did not honour a cancellation. If the issuer accepts the claim, it raises a chargeback through Visa or Mastercard and the amount is debited from the merchant's acquirer, which debits the merchant.

A refund is initiated by the merchant and only costs the transaction fee. A chargeback is initiated by the issuer, adds a dispute fee, counts towards the scheme monitoring ratios and can be lost even when the merchant did nothing wrong. Refunding a valid complaint before it becomes a dispute is almost always cheaper.

How does the chargeback process work, step by step?

Visa and Mastercard use slightly different names, but every card dispute moves through the same stages. At each stage the losing side can either accept the loss or escalate, and the cost of escalating grows.

Most disputes end at the first or second stage. Arbitration means the card scheme itself rules on the case and charges a filing fee of several hundred euros to the losing party, so it only makes sense for high-value transactions with strong evidence.

Which chargeback reason codes do merchants see most?

Each chargeback carries a reason code that tells you what the issuer claims and which evidence can overturn it. Visa groups its codes into four families; Mastercard uses numeric codes that map to the same categories.

Fraud codes are the largest family for most online merchants. Many of them are friendly fraud: the cardholder made or authorised the purchase but disputes it anyway, for example because a family member used the card or they forgot a subscription.

What are the Visa VAMP and Mastercard ECM thresholds in 2026?

Since June 2025 Visa runs a single Visa Acquirer Monitoring Program (VAMP) that replaced its separate fraud and dispute programmes. The VAMP ratio adds TC40 fraud reports and TC15 disputes and divides them by settled card-not-present transactions, so a fraudulent payment that is also charged back counts twice. Disputes resolved through Visa pre-dispute tools and fraud cases that qualify for Compelling Evidence 3.0 are excluded.

Merchants above the excessive threshold pay a fee for every counted fraud report and dispute, which acquirers pass on. Acquirer thresholds are tighter, so an acquirer above 0.5% will push its riskiest merchants to act well before they reach 1.5%.

Mastercard's Excessive Chargeback Program divides a month's chargebacks by the previous month's transactions. Assessments start in the second month above the threshold and rise each month; three consecutive months below the threshold are needed to exit.

What does a chargeback cost a merchant?

The visible cost is the provider's dispute fee plus the reversed amount. The goods are usually gone, the original processing fee is not returned, and every response takes staff time. Some providers charge again when you contest a dispute and refund that fee only if you win. Published fees per provider, and which ones come back when you win, are compared in our guide to chargeback fees.

At high ratios, acquirers can hold a rolling reserve, raise your rates or close the account, and a terminated merchant may be listed on Mastercard's MATCH list, which makes a new account hard to get.

What evidence wins a chargeback dispute?

Evidence must answer the specific reason code, not the dispute in general. A short cover letter that explains the transaction in plain language, followed by documents in the order the letter mentions them, is easier for the issuer's analyst to accept than a large unsorted file.

For card-not-present fraud disputes on Visa, Compelling Evidence 3.0 lets you show that the same cardholder made at least two earlier undisputed purchases 120 to 365 days before, with matching data such as IP address, device ID or shipping address. A successful response also removes the case from the VAMP count.

• Order details: date, amount, items, customer name and email
• 3-D Secure authentication result and ECI value, which shifts fraud liability to the issuer
• Delivery proof with tracking and, for high values, a signature
• Accepted terms, refund and cancellation policy as shown at checkout
• For digital goods and subscriptions: usage logs, sign-up consent, reminder emails and the cancellation record

How can you prevent chargebacks before they happen?

Most chargebacks are avoidable: stop fraudulent payments at checkout, and resolve genuine complaints before the customer calls their bank.

Pre-dispute services such as Visa's Rapid Dispute Resolution and Mastercard's Ethoca alerts let you refund automatically when an issuer flags a complaint, which keeps the case out of the chargeback ratio. Account-to-account methods such as iDEAL or Pay by Bank carry no consumer chargebacks at all; SEPA Direct Debit has its own 8-week refund right instead.

• Use a billing descriptor customers recognise, with a support URL or phone number
• Apply 3-D Secure where risk is high and keep the authentication data
• Score orders for fraud before capture and review outliers manually
• Send order, shipping and renewal reminder emails, with a one-click cancellation link
• Answer support requests within a day and refund quickly when a complaint is valid

What is an early fraud warning and what should you do?

An early fraud warning (EFW) is a notice that a cardholder has told their bank a payment was unauthorised. It comes from the card schemes' fraud reports, Visa TC40 and Mastercard SAFE, and reaches you through your PSP. An EFW is not a chargeback and does not move money, but it is often the first sign of one: Stripe reports that about 40% of Visa and Mastercard early fraud warnings turn into fraud disputes if the payment is not refunded (Stripe documentation, checked 1 November 2026).

When an EFW arrives, check whether the order has shipped and whether the customer is genuine. If you cannot verify it, a proactive refund usually costs less than losing a dispute and paying the dispute fee. A refund does not remove the fraud report itself, which still counts in scheme fraud monitoring; only reversing the authorisation, typically within about two hours of capture, prevents that report. An EFW can also arrive after a dispute has already been filed, so match it against open disputes before refunding to avoid paying twice.

Treat each warning as fraud data too: block the card, email or device for future orders, and review the rules that let the payment through. With RiskCogs, the OrsunPay anti-fraud module, these signals can feed risk scoring and routing rules, so similar payments are flagged or sent to 3D Secure before authorisation.

How do you manage disputes across several PSPs?

Merchants with more than one acquirer see disputes in several dashboards with different deadlines, and each acquirer only sees its share of your ratio. Consolidating notifications, deadlines and win rates in one place makes it easier to prioritise responses and spot a growing reason code.

OrsunPay is a payment orchestration platform that connects you to licensed PSPs; it does not process or hold funds itself. It collects dispute webhooks, early fraud warnings and reports from connected PSPs, and RiskCogs scores payments for fraud before authorisation. Disputes are still decided and settled by the acquirer and the card scheme.

How to respond to a chargeback

1. Check the reason code and deadline Open the dispute in your PSP dashboard, note the reason code and the response deadline, which is usually 7 to 20 days, and confirm the amount and transaction.
2. Decide whether to accept or fight Accept the dispute if the claim is valid or the evidence is weak; contesting a lost case adds fees. Fight when you have proof that answers the specific reason code.
3. Collect evidence that matches the code Gather 3-D Secure data, delivery proof, terms, customer messages or usage logs, depending on whether the code is fraud, authorisation, processing or a consumer dispute.
4. Write a short cover letter Summarise the transaction, state why the claim is not valid and reference each attached document in order.
5. Submit before the deadline and track the outcome Upload the response through your PSP, record the result and, if the issuer escalates to pre-arbitration, decide again based on the amount at stake.
6. Fix the root cause Group lost and won disputes by reason code each month and change the descriptor, checkout, fraud rules or communication that caused them.