While chargebacks are a valuable tool for protecting consumers from fraud, many people don’t understand when it’s appropriate to file one. This causes issues in ecommerce; when too many customers fail to go through the proper resolution channels, the seller can get hit with high chargeback fees.
In order to protect your business, you need to understand what chargebacks are, why customers use them, and how to prevent them.
What Is a Chargeback?
A chargeback is when a customer requests a refund directly from their bank or credit card company. If the financial institution approves it (typically on the basis that it was unauthorized or fraudulent), the customer gets their money back.
Chargebacks are designed to protect consumers from dishonest merchants and fraudulent charges. Unfortunately, they can backfire on honest merchants and negatively impact your bottom line.
Why Are Chargebacks a Problem for Ecommerce Merchants?
Chargebacks are straightforward for consumers. On the merchant’s side, not so much.
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.
While you can dispute chargebacks, the process is 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 prevent chargebacks before they happen.
What Are the Requirements for a Valid Chargeback?
Chargebacks are sometimes appropriate and even necessary. So what is a valid reason to dispute a charge? Customers have a right to file a chargeback when they are the victims of payment fraud or when an ecommerce merchant fails to deliver the product as promised.
Payment fraud is any unauthorized or deceitful transaction made using someone else's payment information, such as credit card details, without the rightful owner's consent. Victims of fraud use chargebacks to recoup their financial losses.
Dishonest merchant practices can include false advertising, never shipping a product, or selling a counterfeit item. A person is entitled to a chargeback when they’re a victim of dishonest merchant practices because chargebacks are a consumer protection tool. They’re designed to ensure that consumers are not left financially responsible for transactions that were not conducted in good faith.
5 Main Chargeback Reasons
Many reasons for chargebacks stem from a single source: lack of customer satisfaction. Whether or not a merchant is to blame, customers often file chargebacks when the product or delivery experience doesn’t meet their expectations. However, chargebacks can result from other situations as well, including errors and even downright deception.
If you’re wondering, “Can you prevent chargebacks?”—the answer is yes. You can definitely take measures to lower the number of chargebacks you receive.
In this section, we’ll review five chargeback reasons and share some tips for preventing them.
1. Payment Processing Errors
Sometimes, chargebacks result from payment processing errors that can occur at any stage of the transaction process. This can include problems such as the following:
- Duplicate charges. Duplicate charges are when a customer is mistakenly billed more than once for the same transaction.
- Unauthorized recurring transactions. This happens when a customer is repeatedly charged for a subscription they did not agree to or after they have canceled the service.
- Refund not processed. When a customer is promised a refund that is not issued, they might file a chargeback to recover their money.
To prevent this type of fraud, implement robust payment processing systems, make sure every transaction is authorized, and promptly address any errors.
2. Payment Fraud
As mentioned earlier, fraudulent transactions are a common—and valid—reason for chargebacks. Payment fraud involves scenarios where a customer's payment details are used without their permission, leading to unauthorized charges on their account.
The best way to prevent payment fraud is to protect your shoppers’ information using secure payment processing methods and fraud detection tools. However, keep in mind that you have limited control over this issue. If someone’s payment information is stolen through a source other than your website, you’ll still have to accept the chargeback.
3. Shipping Issues
Shipping significantly impacts customer satisfaction, and customers who have a bad delivery experience are likely to file a chargeback. You have three main shipping issues to worry about: package loss, damage, and theft. Delays can also be a problem, as customers may think their package has gone missing and file a chargeback prematurely.
Wait a second. The merchant doesn’t have control over these issues, right? Wrong. Even though carriers handle shipping, you’re still responsible for ensuring products arrive and reimbursing customers when things go wrong.
While customers have the responsibility of bringing shipping issues to your attention, many aren’t aware of the proper channels. To prevent shipping-related chargebacks, communicate clearly about shipping times, provide tracking information, and proactively inform customers about delays. Additionally, give them instructions for how to get in touch with you if something happens to their package.
To go the extra mile, offer package protection during checkout. When customers purchase package protection, they know they have a legitimate channel to go through to resolve delivery issues—no chargeback required.
4. Product Quality Issues
Customers sometimes receive merchandise that doesn’t meet the standards advertised by the merchant. Product quality issues can include the following:
- Quality. This could mean that the item is poorly made, uses substandard materials, or doesn’t work as intended. For example, if someone buys a high-end electronic device that malfunctions shortly after arrival, they might file a chargeback.
- Unmet expectations. Similarly, when products have differences in color, size, features, or overall appearance from what was advertised online, customers may dispute the transaction.
- Counterfeits. Another significant cause of chargebacks is when customers receive counterfeit merchandise. If a product is advertised as a genuine brand item but turns out to be a knockoff, customers will feel deceived.
In order to avoid this type of fraud, source from reputable suppliers and conduct regular quality checks. Additionally, make sure to provide detailed, high-quality images and comprehensive descriptions to set accurate expectations.
5. Attempting to Defraud the Merchant
Often, customers who file illegitimate chargebacks simply don’t understand how to request a refund or exchange—they just want to get their money back after a disappointing purchase. Other times, people file chargebacks even when they haven’t experienced an issue with payments, shipping, or product quality. By going straight to the bank for a refund, they get to keep the product they bought and get their money back. This deceptive practice harms your business and can be difficult to prevent.
However, you can take action by using fraud detection systems that flag suspicious behavior such as frequent chargeback requests from the same customer. You should also keep thorough documentation of all transactions and customer communication to provide evidence in case of a dispute.
Common Chargeback Examples and How To Handle Them
Now that we’ve covered some common chargeback reasons, let’s take a look at some example chargeback scenarios, including what you can do to avoid similar situations.
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 (merchant descriptor), but then to do business under a different, public-facing name (DBA). This is only problematic if it confuses customers.
As an example, let’s imagine that you sell watches in an online store called TimeKeep (your DBA). Thomas buys a watch from you using his credit card. A week later, he’s reviewing his credit card statement and sees a charge from Global Jewelry Incorporated (your merchant descriptor). Since he’d have no way of knowing that this alternative name is associated with the store he bought from, he might immediately assume the charge is fraudulent and request a chargeback.
Prevention tip: To prevent a chargeback from happening for this reason, make sure your merchant descriptor is either the same as your DBA name, or at least similar enough 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 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: Haley purchases an expensive piece of home exercise equipment online after seeing a promotional video. However, after receiving the item and trying it out, she realizes that it doesn't fit well in her apartment and she doesn't enjoy using it as much as she thought she would. Instead of contacting the seller for a return or exchange, she decides to file a chargeback with her credit card company, citing that she is dissatisfied with the product.
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. Offer a generous return policy, and be transparent about it. Make it easy for customers to send back an item, 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. If it’s easy and convenient for customers to get in touch, you’ll have a chance to resolve their concerns without them resorting to a chargeback.
Scenario #3: The Customer Is Unhappy With the Product and Wants To Get Their Money Back
Chargeback reason: Jared orders a smartphone, attracted by its advanced features. When the phone arrives, he discovers that the camera quality isn’t as good as he’d hoped. Feeling disappointed and believing the phone is not worth the price he paid, Jared contacts the seller but receives unsatisfactory responses and no offer for a refund. Frustrated and wanting to get his money back, he decides to file a chargeback.
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 details.
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: Breanne notices unauthorized charges on her credit card statement from an online store she doesn't recognize. After investigating, she realizes that her credit card information was stolen and used to make fraudulent purchases from the store. She contacts her credit card company immediately to report the unauthorized transactions and requests a chargeback to reclaim her funds.
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.
One excellent strategy for preventing chargebacks is to offer package protection and a shopping guarantee. With an app like Norton Shopping Guarantee, you can allow customers to insure their shipments and access a variety of satisfaction guarantees.
If a product gets lost, stolen, or damaged, or if it’s not what they expected, our team will resolve issues and reimburse shoppers—at no cost to your business. With an easy route to solve problems, they won’t need to resort to harmful chargebacks.
Add the app to your Shopify store or request a demo today.
