The credit card company will send notice to the credit card processor (also called a merchant acquirer) of the merchant where the transaction occurred.
The merchant’s credit card processor then notifies the business of the dispute. Depending on the processor that dispute process could occur in an old-fashioned paper-based manner, or it could be a streamlined, online process. The merchant has a limited amount of time to respond to the notice and prove that the purchase was made legitimately and the customer took possession of the goods in question.
If the customer can prove that the goods were faulty, were never delivered, or that she never ordered the product in the first place she will get her money back, at the expense of the merchant. If not, then the merchant gets to keep the money. However, whatever the end result, the merchant will have to pay the processor a chargeback fee to cover the cost of the paperwork, usually $5-$25.
One of the best ways to reduce chargebacks is to have a no-hassle and fair return policy for your customers and make sure they know about it, and avoid credit card fraud.
If your chargeback ratio gets too high (more than 1 in every 200 transactions) your processor will put your account on review and require a merchant account reserve and may eventually suspend your account entirely. If you are having chargeback issues FeeFighters has many ways to help.