Chargebacks, Payments

How to Prevent Chargebacks

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In business, there are always some costs that cannot be avoided, like taxes, spoilage, or maintenance. One entry that should never be on that list is chargebacks. As inescapable as they might seem at times, nearly every chargeback is potentially avoidable.

Yet despite the harm chargebacks can cause, chargeback prevention is often perceived as time-consuming and difficult and not enough merchants engage in it. In reality, every merchant need to make the best effort they can to protect themselves, but it’s not always easy to figure out where to start. What are the best ways to prevent chargebacks?

  1. Why is it So Important to Prevent Chargebacks?
  2. How Can Merchants Prevent Chargebacks?
  3. Conclusion

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When it comes to chargeback prevention, there are a lot of options on the table. Merchants can sign up for chargeback alerts and deflection services, which provide you with a window of time during which you can intercede to stop a chargeback in progress.

To combat online credit card fraud, merchants can select from a varied arsenal of high-tech anti-fraud tools.

These can be effective counters for certain types of chargebacks, but there are many dispute scenarios that cannot be addressed by third-party solutions like these.

If you want to prevent as many chargebacks as you possibly can, you need a chargeback prevention strategy informed by your own transaction data and designed with your business needs in mind. This is no trivial undertaking, but the good news is that some of the most effective methods for preventing chargebacks are easy to implement and cost you nothing.

In other words, an effective and reliable chargeback prevention strategy will prove itself through positive ROI. Even if you don’t yet have a comprehensive, customized strategy put into place, you can still start implementing the essential best practices for chargeback prevention.

Why is it So Important to Prevent Chargebacks?

The chargeback process is a legally mandated part of the credit card payments system. If you want to accept credit card payments, you have to accept the risk of chargebacks. It’s up to each merchant to learn what causes their disputes to occur and figure out the best ways to avoid or resolve them before they turn into chargebacks.

A chargeback is more than just a payment reversal, so you can’t compare it to returns and refunds in terms of its cost. Every time you get a chargeback, you’re losing not only the purchase amount and the cost of goods sold, but also all of the transaction fees and other expenses that went into completing the sale. You also get charged additional chargeback fees, and your chargeback rate ticks upward.

While the loss of revenue is the most immediate pain caused by chargebacks, the consequences of a rising chargeback rate can be even worse.

Card networks, acquirers, and payment processors keep a close eye on each merchant’s ratio of chargebacks to transactions. When merchants exceed the maximum threshold (usually 1%), they can be penalized in various ways, up to and including the permanent termination of their merchant account.

When you understand the true cost of chargebacks—and the fact that they can cause you to lose your credit card processing privileges entirely—the importance of making a concerted effort to prevent chargebacks becomes crystal clear.

How Can Merchants Prevent Chargebacks?

Card networks organize chargebacks into various categories and reason codes, but when you’re proactively attempting to prevent chargebacks that haven’t been filed yet, you can sort them into three broad categories: true fraud, friendly fraud, and merchant error.

True fraud chargebacks are filed when a payment card is used by an unauthorized third party. Online credit card fraud is a widespread problem in card-not-present environments such as ecommerce.

Data breaches are frequent, resulting in massive amounts of compromised consumer data being traded and sold on the dark web.

  • Modern ecommerce fraud tends to be a sophisticated, high-tech operation. The best way to stop it is with your own technological solutions, which may include multi-factor authentication protocols like 3-D Secure or fraud filters that use AI and machine learning to identify fraudulent transactions with a high rate of accuracy.
  • fraud Prevention- Proven Strategies to prevent e-commerce fraud Always require AVS and CVV verification.
  • Educate yourself about the telltale signs of ecommerce fraud. This will help when you need to configure your tools and manually evaluate suspicious orders.

Friendly fraud chargebacks are chargebacks that result from false or erroneous dispute claims. In other words, they shouldn’t exist. Sometimes they occur because the cardholder is genuinely confused. They might see your charge on their bank statement, but they don’t recognize the name and assume it must be fraud. Clear merchant descriptors that include a link to your website can help you steer clear of this scenario.

Shipping delays can also lead to friendly fraud chargebacks. If the customer isn’t aware of issues that may be causing delays, they may think they got ripped off and call their bank to dispute the purchase. In situations like this, communication can save the day.

Provide frequent updates to your customers, even—and especially—if you have to give them bad news about when they can expect an order to arrive.

Friendly fraud is also carried out on purpose by cardholders who are well aware that they are doing an end-run around the merchant to get their money back. They may feel morally justified in doing so, especially if they asked the merchant for a refund and were refused, but some people just use chargebacks to cyber-shoplift.

  • Attentive, accommodating, 24/7 customer service can work wonders to help you avoid chargebacks from disgruntled customers.
  • Make sure customers know how to reach you and that they always get a quick response—leaving a message from an unhappy customer unanswered is always an invitation to a chargeback.
  • If the customer is still talking to you, you can almost always avoid a chargeback by giving them a refund.
  • Before you complete the sale, make sure you have clearly and transparently communicated your terms and conditions, return policy, and any other agreements that the customer is signing on to.

The friendly fraudsters who are stealing on purpose are harder to dissuade, but you can deal with them through the chargeback representment process.

If you suspect a customer of filing a fraudulent chargeback, you should block them from making any future purchases—friendly fraudsters tend to be repeat offenders.

Merchant error chargebacks occur when merchants make mistakes during transaction processing, or fail to provide the goods or services that the cardholder paid for.

These chargebacks can be tricky to deal with if you are unable to determine what is causing them, but once you know, fixing them is a simple matter of making the necessary changes to your policies, procedures, or business operations to prevent their recurrence.


The ideal chargeback prevention strategy will utilize the best practices outlined above in conjunction with specific actions, policies, and technological solutions chosen to fit the merchant’s unique individual circumstances. This requires a deep analysis of the merchant’s chargeback data, with an eye toward identifying the root causes of their disputes.

While there is a lot that merchants can do independently to protect themselves, one last way to prevent chargebacks is to ask for help when you need it. The right chargeback management firm will help you come up with a strategy and guide you through its execution, ensuring that you hold on to more of your revenue and keep your chargeback ratio out of the danger zone.

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