What is a chargeback? Chargeback rate thresholds, evidence and what happens to the money
How a chargeback freezes the disputed amount, why a balance can go negative, the 0.65% and 0.9% chargeback-rate thresholds, and the evidence to submit.
On this page
A chargeback is a buyer going around the merchant, straight to their own card issuer, to say a transaction is wrong — the goods never arrived, they were not as described, the card was stolen, a cancelled subscription is still charging. Once the issuer accepts the dispute, the money is held back along the acquiring chain; then the merchant submits evidence and the issuer decides.
For a merchant, the biggest difference from a refund is this: a chargeback is a fact, not a request you can decline. The money is held the moment the case opens. What you can do is submit evidence before the deadline and try to win it back.
How is a chargeback different from a refund?
| Refund | Chargeback | |
|---|---|---|
| Started by | The merchant (usually at the buyer's request) | The buyer, through their card issuer |
| Can the merchant decline | Yes | No — only contest it with evidence |
| The money | Returned by the merchant | Held the moment the case opens |
| Extra fee | None | A fee if the dispute is lost |
| Effect on the merchant | None | Counts toward the chargeback rate, which is capped |
So when a buyer asks for a refund and you agree, refunding promptly almost always beats waiting for it to become a chargeback.
What happens to the money?
With KukoPay, when a chargeback opens the disputed amount moves from the available balance to the frozen balance; when it closes, it is released or debited depending on the outcome:
opened available -= amount, frozen += amount dispute_freeze
won frozen -= amount, available += amount dispute_unfreeze
lost frozen -= amount dispute_debit
available -= fee dispute_feeA lost dispute also carries a chargeback fee, $15.00 by default, covering the acquirer's dispute handling cost; a won dispute is free.
The freeze does not check for sufficient balance: the available balance can go negative. If you had already paid out that money before the chargeback opened, the negative balance is what you owe the platform, and it blocks further payouts until later payments cover it.
This is also why an order with an open chargeback cannot be refunded: the money is already held upstream, and refunding it would pay the buyer twice. KukoPay rejects such a refund with 409 conflict.
The stages of a chargeback
| Status | Meaning | Funds |
|---|---|---|
needs_response | Opened, waiting for your evidence | Frozen |
under_review | Evidence submitted, issuer reviewing | Frozen |
won | Dispute won | Released |
lost | Lost, no evidence in time, or accepted | Debited + fee |
closed | The issuer withdrew the chargeback | Released |
The single most important rule: no response means you lose. If you do not respond by the evidence deadline evidence_due_by, the dispute goes straight to lost, with exactly the same result as accepting it.
What to do when a chargeback arrives
Make sure your system hears about it at once
Subscribe your webhook endpoint to dispute.created. KukoPay also emails the account owner, admins and the onboarding contact address: once when the case opens, then reminders 3 days and 24 hours before the evidence deadline. Email is the backstop, not a replacement for automation.
Find the original order and its evidence
data.object.trade_no in the event points to the original order. Use it to pull shipping records, tracking numbers, buyer conversations and login history.
Submit evidence before the deadline
You can save a draft with submit: false and add material over several calls; when it is complete, send it with submit: true. Submission cannot be undone, and the dispute moves to under_review. See the Disputes API.
Wait for the outcome
When the case closes you receive dispute.won, dispute.lost or dispute.closed, and the balance moves accordingly.
Which evidence for which dispute reason?
Issuers look only at material relevant to the dispute; piling on unrelated files does not help.
| Dispute reason | Most useful evidence |
|---|---|
| Not received | Carrier, tracking number, shipping date, proof of delivery |
| Not as described | Product description, receipt, conversations with the buyer |
| Subscription cancelled | How the cancellation policy was disclosed, the policy itself, why the charge still stands |
| Refund refused | How the refund policy was disclosed, why the refund was refused, the policy itself |
| Unauthorised / fraud | Purchase IP, buyer email, billing address, signature or usage records |
| Duplicate charge | Invoices showing the two transactions are distinct |
For digital services and subscriptions the strongest evidence is often usage: the buyer logged in, downloaded or made calls after the charge — proof that the cardholder used what they paid for.
How is the chargeback rate calculated, and how high is too high?
Chargeback rate = chargebacks opened in a period ÷ successful orders created in the same period. KukoPay measures it per merchant, for live payments, over a rolling 30 days, with two levels:
| Level | Condition | Result |
|---|---|---|
| Watch | At least 2 chargebacks and a rate ≥ 0.65% | Platform operators are alerted |
| Payout hold | At least 3 chargebacks and a rate ≥ 0.9% | Live payouts are suspended automatically and the merchant is emailed |
An example: 300 successful orders and 3 chargebacks in 30 days is a 1% rate — at least 3 chargebacks and at least 0.9% — so payouts are held. The same 3 chargebacks against 500 orders is 0.6%, which triggers neither level.
The 0.9% line matches the card networks' monitoring threshold for acquirers. When the rate is too high it is the platform's shared acquiring account that gets penalised, so the platform acts before the networks do. While payouts are held, taking payments, refunding and answering disputes all continue; an operator lifts the hold after review.
When should you simply accept?
When the fault is clearly yours — the goods really were never shipped, the buyer really was charged twice — accept the dispute through the API. The financial result is exactly the same as letting the deadline pass; the difference is that the case closes now, instead of keeping the amount frozen until the deadline, so the rest of your balance is free sooner.
How to lower your chargeback rate
Most chargebacks are not fraud: the buyer did not recognise the charge, or could not reach you. A few cheap habits help most:
- A clear statement descriptor, so the buyer recognises your shop on their card statement.
- Ship promptly and keep tracking numbers — fewer "not received" disputes, and your best evidence if one comes.
- Answer refund requests quickly. A buyer who cannot get a refund from you goes to their issuer next.
- Make subscriptions easy to cancel, and state the cancellation policy on the order page, not deep in the terms.
- Give buyers a way to find you. KukoPay produces a printable payment receipt for every paid order; see receipts.
The full rules, endpoints and reconciliation fields are in chargebacks and disputes. Every balance movement from a chargeback appears in balance transactions with the dispute number as reference_id, so it matches the dispute record directly.
Try it in the sandbox
Create a merchant account and request a test key. The sandbox needs no business verification.