What a chargeback is
A chargeback happens when a cardholder disputes a charge with their bank. The bank claws back the funds from the merchant while the dispute is investigated, often before any fault is decided.
The lifecycle
- A dispute is opened and funds are provisionally withdrawn.
- The merchant submits evidence to contest it.
- The bank rules, and the merchant either wins and recovers funds or loses them, sometimes plus a fee.
System design notes
- Model the dispute as its own state machine linked to the original payment.
- Post the withdrawal and any later reversal to the ledger so balances reflect reality immediately.
- Track deadlines for submitting evidence, since missing one forfeits the case.
- Watch chargeback rate, because exceeding processor thresholds risks penalties.
Key idea
A chargeback flow tracks a contested charge through opening, fund withdrawal, evidence, and resolution, modeled as a linked state machine with ledger entries and strict response deadlines.