Eight ways to reduce chargebacks for your business

Preventing chargebacks and friendly fraud is a complex challenge, but it is possible to lower your risk. Here are ways every business can mitigate chargebacks.


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  1. Introduction
  2. What are chargebacks?
  3. Why do chargebacks happen?
  4. Why chargebacks are bad for businesses
  5. How many chargebacks are normal for businesses?
  6. Eight ways businesses can reduce their number of chargebacks
    1. Prioritize security for online and in-person payments
    2. Have clear return and refund policies
    3. Keep online inventory updated
    4. Be clear with product descriptions
    5. Manage shipping expectations
    6. Be accessible
    7. Make your free trials actually free
    8. Make sure your real company name shows up on credit card statements

The challenge of reducing chargebacks is directly connected to everything businesses are concerned with most: customer satisfaction, keeping revenue up, mitigating losses, and limiting liabilities in all areas of the business. Chargebacks are a particularly frustrating part of running a consumer business, and most businesses will have to deal with at least some on a regular basis, no matter how vigorously they work at preventing them. Unfortunately, there is no secret fix to permanently eradicate chargebacks—but the more you know about what chargebacks are, what causes them, and what you can do to prevent them, the more manageable the issue becomes.

Below is everything you need to know about reducing the number of chargebacks your business gets hit with.

What’s in this article?

  • What are chargebacks?
  • Why do chargebacks happen?
  • Why chargebacks are bad for businesses
  • How many chargebacks are normal for businesses?
  • Eight ways businesses can reduce their number of chargebacks:
    • Prioritize security for online and in-person payments.
    • Have clear return and refund policies.
    • Keep online inventory updated.
    • Be clear with product descriptions.
    • Manage shipping expectations.
    • Be accessible.
    • Make your free trials actually free.
    • Make sure your real company name shows up on credit card statements.

What are chargebacks?

A chargeback is a reversal of funds from a credit or debit card issuer to the cardholder following a cardholder’s dispute of a charge. Unlike a refund, which involves the business initiating the reversal of funds, chargebacks involve the issuing bank pulling funds from the business’s account, holding on to the money while they investigate the legitimacy of the dispute, and then giving the funds back to the customer if the customer’s claim is deemed legitimate.

Why do chargebacks happen?

Chargebacks are intended to rectify cases of credit card fraud and mistakes like accidental duplicate charges. This is their stated purpose. That said, some consumers dispute charges and request chargebacks for other reasons—namely, to avoid going through the process of returning an item and requesting a refund.

Chargebacks were originally established more than 40 years ago as a means of recourse in the event of credit card fraud. The goal was to increase consumer confidence in credit cards by giving consumers a way to recover any funds lost to fraud. If a purchase was made fraudulently, the cardholder would see the charge show up on their credit card statement, flag it to the bank that issued their credit card, and have the funds returned to them. In theory, the mechanism makes complete sense for basic consumer protection.

In reality, chargebacks are used by customers not only to rectify instances of genuine fraud but also to circumvent the returns process on goods they’re displeased with or as a solution for orders that never showed up. Here are some of the most common reasons why chargebacks occur:

  • Genuine fraud—the charge was not authorized by the cardholder.
  • The items associated with the order never arrived.
  • The customer received the wrong item(s).
  • The customer requested a refund, but it took longer than expected.
  • The customer was dissatisfied with the quality of the item(s).
  • The product was markedly different from its description on the website.
  • Clerical errors (for example, the customer was charged more than once).

Chargebacks that are requested for reasons other than legitimate fraud are referred to as “friendly fraud”—and these situations constitute up to 86% of all chargebacks. For businesses, credit card fraud is clearly bad on many fronts, but it’s a far dicier issue when customers use chargebacks in lieu of going through normal channels to return items and request refunds.

Why chargebacks are bad for businesses

Chargebacks hurt businesses for obvious reasons. After all, any situation where you have to return funds to a customer is inherently not ideal. Beyond the lost revenue from a reversed transaction, chargebacks cost businesses dearly. When you factor in the cost of the time spent processing a chargeback, lost inventory, and fees charged by payment processing providers, businesses lose a disproportionate amount of money dealing with chargebacks. According to a study from LexisNexis, $1.00 of fraud now costs US retail and ecommerce businesses $3.75—this is 19.80% higher than 2019’s cost of $3.13 per $1.00 of fraud.

In addition to incurring costs, chargebacks are often negative indicators of customer satisfaction and, in the case of legitimate fraud, of a problem with security. The bottom line: If your business is seeing a large number of chargebacks, there are likely systemic problems that need to be addressed.

How many chargebacks are normal for businesses?

The good news is that the number of chargebacks businesses see overall tends to decrease year over year. Yet still, the lost revenue they cause is staggering: In 2020 alone, businesses lost $17.5 billion due to chargebacks and fraud, according to a Juniper Research study.

Different card networks and acquirers have varying standards about how many chargebacks is too many for a given business. In general, a 1% chargeback-to-transaction ratio is considered the highest acceptable figure. If your business exceeds the 1% threshold for chargebacks, a few things might happen. Depending on who your payments provider is, you might get hit with higher transaction fees and other penalties if you have an excessively high chargeback ratio. In some cases, Stripe will start building up a reserve account for businesses if their chargeback ratio increases or if it otherwise appears that the business has an elevated risk of customers requesting refunds or disputing charges.

Card networks also take a proactive stance on chargebacks. For example, Visa and Mastercard both have programs that incentivize businesses with high chargeback ratios to take steps to lower their number of chargebacks. Visa’s programs are called the Visa Fraud Monitoring Program (VFMP) and Visa Dispute Monitoring Program (VDMP). Mastercard has the Excessive Chargeback Program (ECP), which consists of two levels: Excessive Chargeback Merchant (ECM) and High Excessive Chargeback Merchant (HECM).

Eight ways businesses can reduce their number of chargebacks

Preventing chargebacks means doing everything in your power to ensure that your customers get what they want when they expect it, are satisfied with what they receive, and can easily reach you should any issues arise. While this goal is absolutely achievable, its execution is a complex and evolving project.

Orchestrating a customer experience that successfully delivers on that goal involves refining every aspect of your business operations. Here are a few key places to start:

Prioritize security for online and in-person payments

Since chargebacks commonly occur as a result of credit card fraud, making security a top priority is the single most impactful thing businesses can do to minimize the volume of chargebacks. There are a number of steps you can take on this front, including:

  • Consult your payments provider:
    Payment processing providers have a strong interest in helping their customers maintain the lowest possible chargeback ratios, so talking to yours about what kinds of support they offer is a good place to start. For example, Stripe offers extensive support around fraud prevention and chargeback mitigation. Stripe Radar is our fraud prevention tool that is built into your Stripe platform from day one, without any need for integration or opting in. Radar leverages payment data from 197 countries to prevent fraudulent transactions. By learning from millions of global businesses processing billions in payments each year, Radar can assign risk scores to every payment and automatically block many high-risk payments. If you want to take your dispute protection a step further, Stripe offers additional chargeback protection that safeguards your sales against fraudulent disputes, helping prevent losses, reimbursing the disputed amount, and waiving dispute fees—whether or not the chargeback is legitimate.

  • Regularly update your point-of-sale (POS) software:
    Failure to keep your POS software updated can lead to security vulnerabilities. Don’t let this easily avoidable problem happen to you.

  • Opt for more secure card transactions:
    Invest in payment gateways and checkout terminals that are equipped to accept contactless payments that use extra-secure NFC technology and EMV chips. Swiped credit and debit card transactions are less secure, since they transmit the card number itself, as opposed to NFC and EMV transactions, which encrypt all sensitive card data.

  • Require customer signatures and PIN number usage:
    This is especially helpful for adding a layer of protection to swiped card transactions.

Have clear return and refund policies

Friendly fraud can be more complicated to combat than straightforward credit card fraud. Many chargebacks happen because customers would rather not go through the trouble of returning an item or seeking a refund. You can encourage customers to go through the proper channels for returning a product they don’t want—instead of just giving up and disputing the charge with their bank—by creating an easy, low-lift, accommodating return policy and communicating it clearly to your customers.

On the surface, it might seem like creating an easy returns process could work against your bottom line, but that’s not the case. If a customer is determined to get their money back after a purchase, you want to do everything in your power to make sure that reversal of funds happens through a refund rather than a chargeback. Even though returns, like chargebacks, involve returning funds to the customer (which isn’t what any business wants to do), refunds are much more business friendly than chargebacks.

Keep online inventory updated

If a customer is able to complete a transaction for a product that is in fact out of stock, you run the risk that the customer will initiate a chargeback instead of coming to you for a refund. Be diligent about keeping online inventory up to date.

Be clear with product descriptions

Another leading cause of chargebacks? Customers don’t believe the product they received matches its online description. Spending a little extra time crafting thoughtful product descriptions, in addition to including true-to-life photos or videos of the product, is a worthwhile investment that can contribute to a reduction in chargebacks.

Manage shipping expectations

Consumers will often initiate a chargeback if they think a product they ordered is lost in the shipping process or otherwise unlikely to arrive. You can help neutralize this risk by providing customers with clear shipping details, including:

  • Which shipping carrier you’re using
  • Confirmation and tracking numbers, along with links to where they can input the tracking information for updates on their shipment
  • Expectations about delivery time
  • Instructions on whom to contact if they stop receiving shipping updates or their package doesn’t arrive

By providing your customers with important information like shipping times, tracking numbers, and the name of the shipping provider fulfilling their order, you empower them to pursue the correct channels when an expected item doesn’t arrive—instead of disputing the charge.

Be accessible

Quite often, chargeback requests happen only after someone has tried and failed to get the business to engage with them about the problem. If a customer has any kind of issue with the goods or services they’ve purchased from your business—anything from unexpectedly being charged for a subscription at the end of a free trial period to erroneously being charged twice to receiving an incorrect item in their order—and they’re not easily able to get in touch with your company to resolve the issue, they’re much more likely to request a chargeback.

Establishing a comprehensive customer service function for your business is the best way to ensure that, in the event of a problem, customers talk to you instead of their credit card company or bank. If your team is abundantly reachable (ideally on multiple channels, including email, chat, text, and phone), you have a higher chance of being able to fix more issues without a reversal of funds. And for those instances when returning a customer’s funds is warranted, you get to initiate it yourself, as opposed to incurring the additional costs associated with chargebacks. Long story short: Make it easy for customers to reach your team.

Make your free trials actually free

If your business sells subscriptions or memberships and you offer a free trial, it’s a good idea to avoid ending the free trial period with automatic billing. While it’s a common practice, automatic billing can lead to unnecessary chargebacks. Giving customers the chance to opt in to a membership or subscription at the end of the free trial period might increase the number of people who drop off, but when you factor in the risk of chargebacks and refund requests—and all the associated costs—eliminating automatic billing after free trials might be a strategic move for your business. Here’s everything you need to know about enabling free trials for subscriptions with Stripe.

Make sure your real company name shows up on credit card statements

One of the most common reasons why customers dispute charges is because they simply don’t recognize the name of the business on their credit card statement. When charges show up on a statement, there’s always a brief description of the transaction, called the billing descriptor. Typically, the name of the business appears in this description, but sometimes the business name isn’t recognizable or doesn’t appear at all. Many consumers will dispute any charge on their account that looks mysterious—so it’s worth making sure that transactions from your business are clearly visible when they appear on your customers’ statements. (We also have an article dedicated to approaching billing descriptors in a way that minimizes chargebacks for your business.)

For most businesses, chargebacks can’t be completely eradicated, but they can be successfully managed. Ultimately, even if you take every security precaution and proactively set up a business with consistently elevated communication and easy customer service access, there’s no avoiding chargebacks entirely. But if you can reduce the number of chargebacks you’re hit with, you’ll be in a stronger position to adequately dispute any unwarranted chargebacks that come your way and to effectively process any cases of legitimate fraud.

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