How To Reduce Chargebacks – A Full Merchant Guide

When Plastic money first made an appearance, consumers were on the fence, and rightly so. There was scepticism about the security of these transactions and whether or not personal information would be compromised.

Banks on the other hand, wanted people to feel more comfortable using their credit/debit cards for everyday purchases. So, they added an additional tier of security, the chargeback.

With added security came trust and people lapped up the idea of using their cards for almost everything, whether it was buying a new outfit or taking a vacation. But as with anything that is used extensively, chargebacks have become a problem for merchants.

If you are a merchant in the UK, you can ill-afford to not think of chargeback management as an integral part of your business. According to Chargeback911, the average cost of a single chargeback will be £165 by 2023.

So, we have compiled a list of ways by you can reduce chargebacks. Before we get ahead of ourselves, let’s try to understand what chargebacks are.

What is a chargeback?

A chargeback is essentially a dispute that a consumer can file with their credit card company, if they feel that they have been wronged by a merchant. In other words, if a consumer is not happy with a purchase they made, they can file for a chargeback and get their money back.

Every chargeback goes through an elaborate dispute resolution process, which can be quite costly and time-consuming for merchants. Not to mention the fact that it can do serious damage to your reputation over a period of time.

When you apply for a merchant account, the underwriter will take a close look at your chargeback ratio in the past. If they deem you to be high-risk, they may either charge you higher fees or not approve your application at all.

All said and done, chargebacks are unavoidable, particularly if you are doing business online. But there are certain things you can do to minimise the number of chargebacks you receive.

Why a consumer might file a chargeback

There are many reasons why a consumer might file for a chargeback. Some are legit. Others are not.

Stolen Credit Cards

This is perhaps the most common reason for chargebacks. The cardholder wakes up one day and finds unauthorised charges on their card. That’s when they realise their card was stolen and they immediately file for a chargeback.

It is estimated that 30% of chargeback claims fall into this category.

There’s not much you can do about this, except make sure that you have tight security measures in place to prevent credit card fraud. We will talk more about this in a bit.

Goods or service not received

Every digital transaction is based on good faith. When a consumer decides to buy something from you, they trust that you will deliver the goods or services as promised.

If for some reason you are not able to do so, the consumer has every right to file for a chargeback.

It is estimated that almost 26% of chargeback claims fall into this category.

To avoid this, make sure you have systems and processes in place to ensure that goods are delivered on time and as promised. If not, then a consumer grievance policy will at least give the appearance that you are taking steps to resolve the issue.

Billing errors

Sometimes, you might make a mistake while billing a customer. Maybe you accidentally charged them twice for the same purchase or you mixed up the currency.

Whatever the case may be, if a customer feels that they have been overcharged, they will file for a chargeback.

Approximately 3-4% of chargebacks fall into this category.

Friendly Fraud

Coming to the not so legit reasons, friendly fraud is when a consumer buys something and then files for a chargeback, even though they received the goods or services. Maybe buyer’s remorse set in after making the purchase.

This is also known as “cyber shoplifting” and is on the rise, particularly in the digital age. It is estimated that almost 70% of chargebacks fall into this category. As a merchant, this is the worst kind of fraud because it is difficult to detect and even more difficult to prevent.

We have found that this is particularly popular in the Raffle / Prize Competition and Gaming industry where users will play the draws, not have the desired outcome and then attempt to recoup their losses via a chargeback.

How does the chargeback process work?

Every chargeback claim is a dispute resolution process with multiple parties involved – the merchant, the acquirer, the issuer, and sometimes even the cardholder.

Here’s an overview of how this works.

Cardholder initiates the chargeback

The process starts when the cardholder contacts their credit card company and initiates a chargeback.

They have to provide a reason for the chargeback and submit any relevant documentation to support their claim. The time to file a chargeback is generally 120 days from the transaction date. But some credit card companies give cardholders up to 540 days to initiate a chargeback.

The issuer then contacts the acquirer

Once the chargeback is filed, the issuer contacts the acquirer (the bank that issued the merchant account) and notifies them of the dispute. There’s a 15-day waiting period after which the chargeback is levied on the merchant.

As a merchant, this is your window for negotiation and dispute resolution.

The acquirer then contacts the merchant

The acquirer then contacts the merchant and provides them with a chargeback notice. This notice includes the date of the transaction, the amount, the reason for the chargeback, and any supporting documentation.

The merchant chooses to accept it or fight it

The merchant then has to respond to the chargeback notice within 15-days. They have to provide evidence that the transaction was legitimate and that the cardholder received the goods or services as promised.

If the merchant does not respond or if the response is not satisfactory, the acquirer will reverse the transaction and credit the cardholder.

The merchant will then be slapped with a chargeback fee, which is generally around 30-40% of the product/service value. That may seem like a small amount, especially if the product you sell is not very expensive. But if you consider that chargebacks are on the rise, it can quickly add up.

And that’s not all. Add to that the advertising cost to acquire the sale, the cost of goods sold, payment processor fees, storage, logistics and you are looking at a significant loss.

How to reduce chargebacks?

Now that you know what chargebacks are and how the process works, let’s take a look at some ways you can reduce them.

Have a proactive customer service team

Proactive customer service can go a long way in reducing chargebacks.

Your customer service team should be able to resolve any issues that customers might have before it escalates into a chargeback.

Your team should be responsive, professional, and knowledgeable about your products or services. Most importantly, they should be able to diffuse difficult situations. Many a time, the cardholder chooses to skip the customer service route and goes straight for a chargeback.

That’s where proactiveness comes in. Sending out periodic mailers at different stages of product delivery can help you track issues beforehand. If your team can reach out to the cardholder and resolve their issue before it escalates, you can save yourself a lot of trouble.

Refunds are cheaper than chargebacks

If you are notified of a problem early on, it is always cheaper and easier to refund the customer than to go through the hassle of disputing a chargeback.

Of course, you don’t want to be taken for a ride and end up refunding every single customer who claims to have had a problem with your product or service. But even if you suspect that the customer might be lying, it may still be cheaper to refund them than to go through the chargeback process.

Make it easy for customers to reach you

It should be easy for customers to reach you if they have any questions or problems.

Your contact information should be visible on your website and on all your marketing materials. You should also make it easy for customers to find the answers to their questions by having an extensive FAQ section on your website.

Use data and analytics

Data and analytics can help you identify patterns and trends that might be indicative of fraud.

For example, if you notice a sudden surge in orders from a particular region or country, it might be worth taking a closer look.

You can also use data and analytics to track customer behaviour. This can help you identify potential issue areas and take steps to resolve them before they result in a chargeback.

Have a clear refund and return policy

Make sure your refund and return policy is clear and easy to understand.

Your customers should be able to find this policy easily on your website. And it should be visible at all stages of the purchase process.

If you have a no-questions-asked refund policy, make sure your customer service team is aware of it. This will help them resolve issues quickly and efficiently.

Offer multiple payment options

Offering multiple payment options may also help reduce chargebacks.

Different customers have different preferences when it comes to payments. Some might prefer to pay by credit card, while others might prefer debit cards or even e-wallets, some of which are not as prone to fraud as credit cards are.

By offering a variety of payment options, you can make it easier for your customers to pay. And that can go a long way in reducing chargebacks.

Use fraud detection tools

There are a number of fraud detection services available that can help you identify fraudulent transactions.

These tools use a variety of data points to flag potential fraud, including things like the IP address, global databases of email addresses associated with fraudulent transactions, shipping address, and phone number to name a few.

Fraud detection tools can also help you keep an eye on high-risk transactions. This can help you take steps to prevent fraud before it happens.

Fighting Chargeback Fraud

While chargebacks are inevitable, merchants can take steps to reduce their exposure to chargebacks.

There are a number of things you can do to prevent chargebacks from happening in the first place. And if a chargeback does happen, there are steps you can take to fight it.

The Rebuttal letter

Merchants are required to submit relevant evidence to the issuer if they want to dispute a chargeback.

The Rebuttal letter is a succinct summary of all the evidence that you are presenting in your favour. It is hands down, the most important part of your dispute.

To craft an effective rebuttal letter, you need to understand the chargeback reason code. The chargeback reason code will tell you why the cardholder is disputing the transaction.

Once you know the reason code, you can look at your evidence and determine what is most relevant.

For example, if the reason code is “merchant error”, you would want to include evidence that shows that you did not make the mistake that the cardholder is accusing you of.

You should include all the facts and supporting documentation that you have gathered.

The Rebuttal letter should be clear and concise. It should also be free of any emotion or opinion. The focus should be on the facts and evidence that you are presenting.

The goal of the letter is to convince the issuer that the chargeback is unwarranted. If you are not sure how to write a Rebuttal letter, there are template letters available online that you can use.

Maintain records

Merchants should maintain granular records of all their transactions for up to 6 months from the transaction date. This is because most chargebacks happen within that time frame.

This includes sales receipts, invoices, delivery records, and communication with the customer on all communication channels. Email chains, chat transcripts and even call records, if available.

The IP address can often swing the dispute in your favour. For instance, if the customer claims that the card data was stolen, but your analytics software has logged their IP address at the time of the transaction, you can prove that it is a fraudulent claim.

These records can be used to support your case if a chargeback happens.

3D Secure 2.0

Merchants in the EU must implement 3D Secure 2.0 to be compliant with the PSD2 directive.

3D Secure 2.0 is an updated version of 3D Secure that includes new features like biometric authentication and risk-based authentication. It requires the cardholder to enter a one-time password (OTP) that is sent to their mobile phone.

This OTP needs to be entered before the transaction can be completed. The goal of 3D Secure 2.0 is to make online transactions more secure. It also helps reduce chargebacks by preventing fraudsters from using stolen card data.

If you are not using 3D Secure 2.0, you are exposing yourself to chargebacks.


Chargebacks are a fact of life for merchants. But there are things you can do to reduce your exposure to chargebacks.

By offering a variety of payment options, using fraud detection tools, and being proactive about chargeback prevention, you can reduce the number of chargebacks you experience. And if a chargeback does happen, there are steps you can take to fight it.

If you are looking for more information on how to reduce chargebacks, we are here to help. We can help you reduce your exposure to chargebacks and fight chargebacks that do happen. Click here to contact us now.