What You Should Know About Chargebacks

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What You Should Know About Chargebacks

Chargebacks are a major headache for online merchants. They hurt your revenue, damage customer relationships, and can even threaten your ability to accept card payments. While you can’t eliminate all chargebacks, there are effective ecommerce chargeback prevention strategies you can put in place to significantly reduce chargebacks.

What Is a Chargeback?

A chargeback happens when a cardholder contacts their bank or card issuer to dispute a transaction, and the funds are reversed from your account.

Common reasons include:

  • Unauthorized or fraudulent transactions
  • Dissatisfaction with product or service
  • Non‑delivery or delayed delivery
  • Billing confusion

Chargebacks are more than just a refund – they often come with fees, and a high chargeback rate can damage your relationship with payment providers.

The Dispute Life Cycle

Source : Chargeflow.com

What Are the Main Causes of Chargebacks?

There are a number of reasons why chargebacks occur – some can be avoided while others are, for all intents and purposes, out of your control.

Here are the most common:

1. Returns and Cancelled Transactions: These are, more often than not, the most legitimate chargebacks, either stemming from a customer being unhappy with a product purchased or having a second thought after initiating a purchase.

2. Affiliate Fraud: This happens when savvy affiliate marketers allow many fraudulent transactions to happen on their sites in order to boost their own commissions. Typically, they’ll cash out on those commissions before a retailer ever catches on.

3. Delivery Issues: A lot of things can happen between the moment a customer purchases something online and when they actually receive it. There could be shipping delays, damaged packaging, products broken upon arrival, the wrong product shipped, and a number of other things that could negatively impact the customer experience and, thus, give them plenty of reason to request their money back.

4. Authorization and Processing Issues: These are errors that happen on your payment processor’s side of things – primarily when the processor can’t authorize a transaction and can be avoided with the right systems and solutions in place to minimize error.

The complete list of why a customer may request a chargeback is actually endless. Some reasons are 100% valid while others skew far into fraud territory. Therefore, generally speaking, we can organize chargebacks into three primary categories:

1. Criminal Fraud: Unfortunately, this is something that has likely happened to all of us at some point in time. Here’s the scenario. Someone steals your credit card or gets access to your credit card details, makes a purchase online, has that purchase delivered to them, and then later on, when you’re reviewing your credit card statement, you see an erroneous charge and request a chargeback. In this case, the fraudster gets something for free, you get your money back, and the retailer takes a loss in terms of both revenue and a product that will never be returned.
2. Merchant Error: This encapsulates any time a merchant or retailer does not live up to its service-level agreement with customers. Whether packages were lost, incorrect items were delivered, or simply the customer experience was subpar in any way. Obviously, things happen, but it’s up to retailers to ensure that all systems in place can deliver on the same, consistent customer experience with every transaction.
3. Friendly Fraud: Since when is fraud ever really friendly? The truth is, it’s not. This is just a nice way of referring to when a customer disputes legitimate charges. In some cases, they may have simply forgotten about the purchase or a purchase was made by someone else (with authorized access to their card) without them knowing it. Then, there are other customers who simply don’t want to pay for an order. The latter is the least “friendly” of this lot.

Why Chargebacks Matter for Ecommerce

Chargebacks are costly and risky:

  • Financial loss: You lose not only the transaction amount but also dispute fees and potential penalties.
  • Operational burden: Handling disputes consumes time, effort, and resources.
  • Risk to your merchant account: Repeated chargebacks may lead to higher processing fees or account restrictions.

That’s why ecommerce chargeback prevention is critical and why partnering with a Merchant of Record (MoR) like Nexway can protect your revenue while reducing operational complexity.

7 Ways to Reduce Chargebacks

Here are some practical ways to reduce chargebacks and protect your business:

1️⃣ Implement Strong Authentication

Tools like 3D Secure (3DS) and multi-factor authentication help verify cardholders and reduce fraud-related disputes.

2️⃣ Use Clear Billing Descriptors

Ensure that names and descriptions on customer statements match your brand.

3️⃣ Clarify Refund and Return Policies

Transparent policies encourage customers to request refunds rather than filing disputes.

4️⃣ Set Realistic Shipping Expectations

Accurate shipping times and tracking reduce “non-delivery” claims.

5️⃣ Use Fraud Prevention Tools

Leverage AI-based fraud detection, Address Verification System (AVS), and CVV checks to filter risky transactions.

6️⃣ Automate Chargeback Management

Automated monitoring and response tools help resolve disputes quickly, sometimes before a formal chargeback occurs.

7️⃣ Maintain Consistent Branding

Keep branding consistent across your website, receipts, and billing statements to prevent confusion and “friendly fraud.”

Smart Prevention. Max Protection.

How Nexway Helps You Prevent and Manage Chargebacks

At Nexway, we make ecommerce chargeback prevention simple and effective. Our tools help you streamline payments, protect revenue, and minimize disputes – so you can focus on growing your business.

Fast Order Approvals Fraud Scoring: Quickly approve orders with advanced fraud scoring.
Chargeback Management Automated Monitoring: Instantly approve legitimate transactions and reduce chargebacks.
Proactive Alerts: Address disputes before they escalate into chargebacks.
Efficient Resolution Immediate Responses: Stop chargebacks with quick refund actions.
Hybrid Fraud Prevention Comprehensive Protection: Combine machine learning with expert manual reviews for optimal security.
Secure Payments Orchestrated Solutions: Access diverse secure payment integrations.
PCI Compliance Level 1: Ensure safe online transactions.
Tailored Solutions Customized Fraud Strategies: Get personalized solutions to meet your business needs.
Expert Support Dedicated Assistance: Benefit from ongoing expert support.

Take control of your payments and reduce chargebacks before they happen. Contact Nexway today to discover how our solutions can make chargeback prevention an effortless part of your e-commerce workflow.