Chargeback (payment dispute / transaction reversal)

What is a Chargeback?

A chargeback occurs when a cardholder contacts their issuing bank to dispute a transaction, triggering a forced refund that bypasses the merchant. Unlike a standard refund initiated voluntarily by the merchant, a chargeback is processed through the card network (Visa, Mastercard, American Express). Usually it results in disputed funds being withdrawn from the merchant’s account pending investigation.

The mechanism was established under the Fair Credit Billing Act to protect consumers from fraudulent charges, billing errors, and undelivered goods. Each chargeback carries a reason code categorizing the dispute.

In iGaming specifically, chargebacks commonly arise from:

• Unauthorized card use (third-party fraud with stolen credentials)
• Friendly fraud (legitimate players disputing valid deposits after losses)
• Family fraud (household members gambling without the cardholder’s knowledge)
• Unclear billing descriptors that players do not recognize

How does a Chargeback work?

The chargeback process involves multiple parties and typically spans 60–120 days:

1. Dispute initiation. The cardholder contacts their issuing bank to contest a transaction.
   
2. Provisional credit. The issuing bank issues a temporary credit to the cardholder while initiating the formal chargeback.
   
3. Merchant notification. The card network routes the chargeback to the merchant’s acquiring bank. Disputed funds are debited immediately.
   
4. Response window. The merchant has 20–45 days to accept the chargeback or submit a representment package with compelling evidence.
   
5. Issuer decision. The issuing bank reviews evidence and decides whether to reverse or uphold the chargeback.
   
6. Arbitration (if contested). If the merchant disagrees, the case may escalate to card network arbitration, incurring fees of $250+ for the losing party.
   

Examples of Chargebacks

Example 1: third-party fraud. A fraudster deposits $500 using stolen card details, places bets, and withdraws $300 before the legitimate cardholder notices. The cardholder files a chargeback. The operator loses the deposit plus fees with minimal recovery chance.

Example 2: friendly fraud after losses. A player deposits $1,000 at a sportsbook, loses on NFL bets, then files a chargeback claiming unauthorized transactions. The operator has strong evidence — IP logs, device fingerprints, KYC records, and gameplay history — and can represent the transaction.

Example 3: billing descriptor confusion. A casino operating as “XYZ Holdings Ltd” appears that way on statements rather than “Lucky Spin Casino.” Players dispute charges they don’t recognize — friendly fraud stemming from merchant error.

Chargeback vs. refund

A refund is merchant-initiated and carries only standard processing fees with no impact on chargeback ratios. A chargeback is cardholder-initiated via the bank, incurs fees of $15–$100+, counts toward monitoring thresholds, and takes 60–120 days to resolve. Merchants can dispute chargebacks through representment; refunds are final once processed.

Why are Chargebacks important?

Financial impact. Operators lose the transaction amount, forfeit associated bonuses, and incur fees of $15–$100+ per dispute. For every $1 lost, merchants face $3.75–$4.61 in total costs.

Revenue recognition. Disputed transactions create uncertainty in calculating NGR and GGR, complicating affiliate commission calculations.

Payment processing risk. Card networks operate monitoring programs with strict thresholds. Visa’s VAMP flags merchants exceeding 1.5%; Mastercard triggers at 100 chargebacks monthly with 1% ratio. Exceeding thresholds results in fines and potential processing termination.

Affiliate implications. High chargeback rates on specific cohorts indicate traffic quality issues, prompting operators to adjust revenue share or terminate partnerships.

Common pitfalls / challenges

Friendly fraud prevalence. First-party fraud accounts for approximately 36% of all reported fraud globally, more than doubling from 15% in 2023.

Evidence collection gaps. Many operators lack systematic retention of device fingerprints and gameplay records needed for representment.

Descriptor misalignment. Corporate structures often result in billing descriptors players don’t recognize.

High-risk classification. iGaming merchants face higher fees, rolling reserves, and lower thresholds than mainstream e-commerce.

Regulatory complexity. Self-exclusion programs create scenarios where players may legitimately dispute charges.

How to optimize Chargeback management (tips / best practices)

Strengthen identity verification. Implement robust KYC procedures including document verification and device fingerprinting.

Align billing descriptors. Ensure descriptors clearly identify your brand. Include a customer service phone number where permitted.

Deploy fraud detection tools. Use AVS, CVV matching, velocity checks, and 3D Secure for risk-based authentication.

Implement bonus abuse detection. Multi-accounting and deposit bonus exploitation often precede chargebacks.

Maintain comprehensive records. Retain login timestamps, device identifiers, IP addresses, and gameplay logs for at least 540 days.

Establish pre-dispute resolution. Enroll in alert services (Verifi, Ethoca) that provide a refund window before chargebacks post.

Build representment capability. Merchants win approximately 45% of represented cases with properly organized evidence.

Wrap-up

Effective chargeback management requires prevention, detection, and response capabilities. Operators should prioritize strong KYC verification, deploy fraud detection, maintain comprehensive records, and build systematic representment processes.

Payment processing relationships, regulatory standing, and affiliate partnerships depend on maintaining ratios below network thresholds. For operators and affiliates analyzing market performance, platforms like Blask provide competitive intelligence to contextualize player acquisition quality and identify markets with elevated fraud risk with Customer Profile feature.

FAQ

Can players successfully chargeback legitimate gambling losses? While banks often initially side with cardholders, operators with strong evidence can successfully represent these cases. However, players attempting chargebacks on legitimate losses may face account closure and blacklisting.

How do chargebacks affect affiliate commissions? Most affiliate agreements include provisions for chargebacks to reduce NGR calculations retroactively. Affiliates driving traffic with high chargeback rates may face clawbacks or termination.

How long do cardholders have to file a chargeback? Timeframes vary by card network. Visa and Mastercard generally allow 120 days from the transaction date; some fraud claims may be filed up to 540 days after the transaction.