Chargebacks are unfortunately a fact of life for merchants, both in the physical and online environments. Broadly speaking, the reasons for chargebacks can be separated into the following groups:


These types of chargebacks happen when the cardholder did not authorize the purchase. The card may have been lost, stolen or cloned, or the user’s accounts may have been hacked. It could also be that the merchant was fake and scammed the customer into buying goods that did not exist.

Friendly fraud

These chargebacks happen when the customer tries to exploit the chargeback system and get the goods or services for free. This is also known as cyber shoplifting. Family fraud – where a family member uses the cardholder’s information to make a purchase without the knowledge of the cardholder –  also falls under this group.

Transaction errors

These chargebacks happen when there is a technical processing error, such as double billing or a debit applied instead of a credit.

Customer errors

These chargebacks happen when customers simply make mistakes when they purchase, such as purchasing incorrect items or quantities. They may also simply forget that they made the transaction in the first place, or not recognise the billing name and associate it with a legitimate purchase. 

Merchant errors 

These chargebacks happen when the merchant makes a mistake with the sale, such as shipping incorrect or defective goods, or not delivering at all.

When it comes to reducing instances of chargebacks in the case of true fraud there are many great tools, such as fraud prevention software and payment verification systems. Depending on where a merchant operates, local regulations may even enforce security measures, such as 3D Secure or Strong Customer Authentication (SCA). 

Friendly fraud and customer mistakes are more difficult to deal with. The best defense a merchant has in these instances is to have impeccable paperwork so that they can dispute the chargeback successfully.

However many merchants, particularly small ones or start-ups, neglect the one area that they have a lot of control over, and that is their own business processes. Let’s look at some common mistakes that online merchants make that can result in chargebacks, and how to prevent them. 

No clear return and refund policies

It is very important to have clear return and refund policies in place and to make them easily accessible to the customer. They should be written in simple language and cover as many situations as you can think of. They also need to be clearly labeled and easy to get to on your website.

Making returns difficult

Customers returning items for whatever reason is a normal part of business practice. Make it easy for your customers to return goods to you, for example, arrange collection by courier and supply the completed waybill to the customer so it can be simply attached to the parcel. And send the customer confirmation when you receive the goods back.

Not refunding timeously

If a refund is due to a customer make sure it is processed in the agreed upon or stated timeframe. If you are late with a refund without explanation the customer may take it into their own hands to get their money back. 

Bad customer service

It is vital that you are available to your customers and that you respond to them as soon as possible. It can be very difficult as a small business to be available 24/7, but there are options such as automated emails informing customers that they will be attended to and when. Mistakes happen and the majority of customers are willing to find a resolution to a situation before resorting to a chargeback, but the merchant needs to be contactable. Make sure that your contact details are accessible to your customers.

Not communicating delays

Not all goods are available to ship immediately, some may require a few days and others may even have dispatch times of weeks or months. It is vital to communicate clearly to your customer when the goods will be dispatched. With long dispatch times customers could forget that they ordered the item, so be sure to remind them that the item/s has finally shipped. Also inform customers if there are any unexpected delays with their order and keep them up to date with the progress of their order. If an item is experiencing an unexpected delay it may be wise to ask the customer if they wish to wait for the item or cancel their order.

Bad product information

It is crucial that your website has very clear descriptions of the items you sell. Product information should include clear descriptions, pictures, sizes, colours, variants, quantities, materials, suggested uses, inclusions & exclusions and so on. Also include very clear information about additional costs such as shipping and taxes. When your customer purchases something from you it should be very clear what they are purchasing and for how much.

Bad billing descriptors

If your customer cannot associate the name on the card statement with the purchase they made from you they may think the purchase is fraudulent. If the wording on the descriptor is different to your online shop name you need to make it clear to the customer who is billing them and for what. This is especially important for recurring billing.

Shipping problems

Use reliable shipping partners who provide parcel tracking and delivery confirmation. Simply leaving a package on a doorstep is not sufficient for e-commerce. Communicate waybill information to the customer so that they may track their package online.

Not taking customer security seriously

Customers want to feel that you are safe to transact with. You should implement systems such as confirmation emails and/or text messages for orders and dispatch, as well as consider security measures to combat account takeover fraud. Make sure your technical systems have excellent security and that updates are made as needed.

Not having strong internal procedures in place

Document your processes and procedures and train your staff to be proficient in them. Make sure you are compliant with regulations that apply to your business, and keep excellent records. 

Of course, there are a great many more areas that merchants can look at within their own organization where they can make improvements. It may seem like a lot of work, but most of the items mentioned above are simply good business practices. 

One of the most important choices a merchant can make is their payment services provider. Partnering with a great provider is an essential step in reducing chargebacks relating to fraud in your business, and they may also assist in dealing with cases of friendly fraud. Talk to us  at Baer’s Crest about a payment solution for your business.