What is a chargeback? How it works in Canada, and what it costs you

The short answer

A chargeback is when your customer asks their bank to reverse a card payment, and the bank does. The money comes back out of your account, and most providers charge a fee on top.

Visa calls it a dispute. Visa Canada describes it as a reversal of the value, or part of the value, of a payment by the card issuer to the acquirer (Visa Canada). The issuer is your customer’s bank. The acquirer is the company that handles your card sales. Your acquirer passes the reversal on to you.

Visa Canada says disputes “can be costly for merchants.” You can lose the sale, the goods, and the time it takes to deal with it.

How a chargeback works, step by step

Visa’s merchant guide lays out the path (Visa Dispute Management Guide for Merchants):

1. Your customer contacts their bank. They may not recognize the charge, may not have got what they paid for, or may think something went wrong.
2. The bank checks the claim. If it meets the network’s rules, the payment is sent back through the card network to your acquirer.
3. Your acquirer contacts you. It tells you the reason and asks for evidence. Visa Canada’s advice: “Provide accurate information, swiftly.”
4. You respond, or accept it. You send your evidence to your acquirer, not to the customer’s bank.
5. The issuer decides. Mastercard says the evidence goes through the network to the issuer, and “The issuer then makes the final decision” (Mastercard).

Visa’s guide notes that its rules “may not apply to all countries,” and that local laws may apply too. Your acquirer will tell you what applies to you.

How long you have to respond

Your acquirer sets your deadline. Mastercard’s guidance for merchants says (Mastercard):

• “Timeframes for acquirers average 10-35 days.”
• Network deadlines are “typically 20 to 45 days after the merchant is notified.”
• “The entire chargeback process can take up to 120 days.”
• If you miss your acquirer’s deadline, “they will lose the chargeback dispute by default.”

Visa’s guide says “Each step in the dispute process has a strict deadline” and to “Check with your acquirer to understand the timelines.”

Chargeback reason codes

Every chargeback comes with a reason code. Mastercard says your acquirer gives you one, and that your evidence “should directly address the chargeback reason code.”

Visa groups its codes into four categories (Visa Dispute Management Guide):

Visa category	What it means	Examples
10: Fraud	The cardholder says they didn’t make or allow the payment	10.4 Other Fraud, Card-Absent Environment
11: Authorization	The payment didn’t get a valid approval	11.2 Declined Authorization, 11.3 No Authorization / Late Presentment
12: Processing errors	Something went wrong in how the sale was run	12.5 Incorrect Amount, 12.6 Duplicate Processing / Paid by Other Means
13: Consumer disputes	The customer has a problem with what they bought	13.2 Cancelled Recurring Transaction, 13.3 Not as Described or Defective, 13.6 Credit Not Processed

Mastercard and other networks use their own codes. Your acquirer’s notice tells you which one applies.

For in-person sales, the chip matters. Visa says if a chip card is swiped or typed in instead of read by the chip, “you may be held financially responsible for certain types of fraud.” Mastercard says merchants are “generally liable for all chargebacks” on card-not-present sales, but not for genuine fraud on card-present sales.

Your customer’s protection against card fraud

Canadian cardholders have strong protection against fraud. The Financial Consumer Agency of Canada says a federally regulated financial institution “must always fully investigate a transaction that you dispute.” For a credit card from a bank, it says the most a cardholder pays for unauthorized use is $50, unless they were grossly negligent. It also says Visa, Mastercard, American Express and Interac “have committed to protect you against financial loss” (FCAC).

That protection is for your customer, not you. On the business side, Mastercard’s point above applies: merchants are generally liable for chargebacks on card-not-present sales, so online and phone orders carry the most risk.

What Canadian providers charge per chargeback

From each provider’s own published pricing:

Provider	Chargeback fee	The detail
Helcim	$15 if you lose	$0 if the case is resolved in your favour
Shopify	$15 CAD	Shopify lists “$15 CAD or $15 USD” for Canada
Lightspeed	$15	Currency not stated
Stripe	CA$15 per dispute	Plus CA$15 if you respond manually, refunded only if you win
Moneris	$25	Moneris also lists an $80 “Authorization Chargeback Handling” fee
Square	Not published	Not shown on Square’s Canadian pricing page

Stripe also offers Smart Disputes, which costs 30% of the disputed amount for each dispute it wins for you.

Mastercard adds that “regardless of whether the merchant is liable for the chargeback, they must pay the chargeback fee.” So even a dispute you aren’t blamed for can cost you.

Why your chargeback count matters

Winning doesn’t wipe the slate. Mastercard says each dispute still counts toward your chargeback ratio, which is used to judge how risky your business is, and “A high ratio may result in higher fees and potentially even the risk of having their merchant account frozen.”

How to prevent chargebacks

Visa Canada’s tips (Visa Canada):

• Show your policies at the sale. “State your policies clearly at the time of transaction,” ideally on the receipt.
• Use a name customers know. Submit the business name your customers recognize most.
• Charge once. Void wrong receipts and process each sale only once.
• Ship before you deposit. Don’t deposit a sale until the goods have shipped.
• Warn about delays. Tell customers about any delivery delay and the new date.
• Deposit quickly. Visa suggests depositing “within one to five days of the transaction date” to avoid late presentment disputes.
• Use the chip. Let the terminal read the chip instead of swiping when a chip card is used.
• Refund fast. Visa’s guide says if a customer contacts you and a refund is fair, issue it quickly. That can head off a formal dispute.

How to respond to a chargeback

1. Read the reason code first. Visa says “Effective responses focus on relevance and clarity, not volume.”
2. Gather the right proof. Mastercard lists delivery confirmation, purchase or usage history, the refund policy the customer agreed to, address and CVV matches, and emails or call records with the customer.
3. Show a refund if you gave one. Visa says to include the date, amount and transaction reference.
4. Send it before the deadline. Send everything to your acquirer, or through your provider’s dashboard.
5. Decide if it’s worth it. Mastercard says that if your evidence is weak, you may want to reconsider disputing.

If you think your provider handled it unfairly, FCAC says merchants should “Start by trying to resolve the problem directly with your acquirer,” then contact the card network. FCAC itself “does not resolve individual complaints” (FCAC).

Keep reading

• Credit card processing fees in Canada, explained: every line on your statement.
• What is a merchant account?: who holds your money between the sale and your bank.
• The fee calculator: work out your real rate from last month’s statement.