4 Common Reasons Customers Initiate Chargebacks, and What to Do About Them

woman filing a chargeback on phone

Even if you’re relatively new to ecommerce selling, you’re probably already all too familiar with chargebacks. A chargeback is the term for when a bank or credit card company requires you to refund a customer’s money for a purchase they made, at the customer’s request. Chargebacks are designed to protect consumers from dishonest merchants and fraudulent charges. The problem is that they can backfire on honest merchants and negatively impact your bottom line. While you can dispute chargebacks, the process is known to be complicated and time-intensive and comes with a low success rate. In general, it’s a better use of your time and resources to try to avert chargebacks before they happen.

So if you're stuck on the question of how to reduce credit card chargebacks, read on! We’re going to cover four common scenarios for how chargebacks happen, and then share advice on how to prevent each one.

Why are chargebacks a problem for ecommerce merchants?

A chargeback is essentially a refund requested by a consumer. If their bank or credit card company approves it (typically on the basis that it was unauthorized or fraudulent), the consumer gets their money back. On the merchant’s side, however, it’s not that simple. First, there’s often a fee associated with chargebacks, which you’ll have to pay. So not only are you losing out on the sale, but you’ve lost the value of the product you sold and you have to pay a fine on top of it all. Especially if you sell more expensive items, the cost of multiple chargebacks can add up quickly over time.

Plus, frequent chargebacks can harm your relationship with banks. If you have too many in a certain period, they may slap you with additional fines and even restrictions as consequences. That’s why it’s in your business’s best interest to do everything you can to avoid chargebacks altogether. If you’re wondering, ‘Can you prevent chargebacks?’—the answer is yes. You can definitely take certain measures to lower the number of chargebacks you receive. Let’s examine the four most common scenarios that lead to chargebacks and take a look at how to prevent them.

Scenario #1: The customer doesn’t recognize the charge on their credit card statement.

Chargeback reason: It’s not uncommon for brands to have an official name, but then to do business under a different, public-facing name. This is only problematic if it causes confusion for customers. As an example, let’s imagine that you sell watches in an online store called TimeKeep. A customer buys a watch from you using their credit card. A week later, they’re reviewing their credit card statement and they see a charge from Global Jewelry Incorporated. Since they’d have no way of knowing that this alternative name is associated with the store they bought from, they might immediately assume the charge is fraudulent and request a chargeback.

Prevention tip: How can you prevent a chargeback from happening for this reason? The answer is to make sure your merchant descriptor is either the same as your DBA name, or at least similar enough so as to be recognizable. If this is not the case and it’s not possible to change it, you should at least inform your customers of the alternative name that they’ll see on their statement. Some merchants choose to include this information on the checkout page, or in the purchase-confirmation email.

Scenario #2: The customer has buyer’s remorse and wants to get their money back.

Chargeback reason: We’ve all felt it at some time or another; buyer’s remorse is real. However, instead of contacting you, the merchant, for help or to request a refund, some customers go straight to their bank or credit card company. They’ll dispute the charge that way, without giving you a chance to give them a refund directly.

Prevention tip: The only way to prevent a chargeback for this reason is to do everything you can to provide customers with other options for when they change their mind about a purchase. A refund will cost you less than a chargeback because you’ll receive the product back and there will be no extra fees for you. That’s why you should offer a generous return policy and be transparent about it. Make it easy for customers to send back an item for any reason, and make the returns process simple and uncomplicated. Be sure to outline your return policy using clear, simple language, and have it easily accessible on your website for any shopper to find.

You should also make sure you have reliable and friendly customer service. Share their contact information—whether it’s a phone number or an email address—on multiple places on your website, on your social media, and in email communications you send to shoppers. You want it to be easy and convenient for them to contact customer support in case they have any issues. That way, you have a chance to resolve their concern without them resorting to the initiation of a chargeback.

Scenario #3: The customer is unhappy with the product and wants to get their money back.

Chargeback reason: When a customer finally receives the product they ordered in person, it may not always meet their expectations. Whether it doesn’t fit or doesn’t look like they imagined, they might decide they’re dissatisfied enough to want their money back. Unfortunately, as in the previous scenario, some consumers request a refund from their credit card company instead of coming to you, the seller, with their concerns or issues.

Prevention tip: One tactic for preventing chargebacks for this reason is to be crystal-clear with your product descriptions and photos so shoppers know exactly what to expect. List every detail you can think of in the product description, including dimensions/measurements, fabric/materials, wattage or voltage, battery requirements, information on cleaning/washing, fit information, etc. Upload high-quality photos from multiple angles, and enable zooming if possible so shoppers can see the detail.

If you’re selling apparel of any kind, offer a fit recommender or size chart. Show an image of how the photo looks on a model, and include the model’s measurements. Do everything you can to ensure that the product online looks just like the product they’ll receive. Plus, of course, make sure to follow the advice from the previous scenario on providing excellent and easily reachable customer service to make returns simple.

Scenario #4. The customer’s credit card information was stolen and used to make fraudulent purchases from you.

Chargeback reason: An increasingly common reason for a customer to request a chargeback is that their credit card or credit card information was stolen and used to make an unauthorized purchase. Cybercriminals are always looking for new ways to access credit card details for this purpose. While it’s a bigger problem that’ll require more comprehensive solutions, you as an individual merchant can take certain actions to help prevent fraud from happening to customers through your website.

Prevention tip: Of course, no one disagrees with a consumer’s decision to request a chargeback in this case. That’s why the only way to try and prevent chargebacks due to fraud is to weed out these fraudulent transactions before they can go through. If you’re not already following proper payment-processing protocols, getting up to speed in this department should be a top priority for you. Check the recommendations from the companies of credit cards you accept. Some recommend or even require that you collect customer IP addresses as part of the purchase process, for example. Others will have you use CVV verification to help prevent fraudulent purchases from going through. Implement as many of these safeguards as possible to help protect your business and your customers.

Prevent chargebacks to protect your business

Customers may request chargebacks for multiple reasons. Whether they’re justified or not, having the credit card company grant them means your business will have to pay up. Implement some of the techniques we’ve covered here to help prevent chargebacks. You’ll have a better reputation with your customers and credit card companies, and you’ll save lots of money and hassle over the long term.

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