Understanding Chargebacks: How To Reduce Chargebacks

In today’s online business landscape, the ability to accept and manage credit card payments for your business transactions is essential.

But processing credit card payments isn’t without risk, and one of the main threats facing online merchants are chargebacks.

But do not fear: Paydoo is here to break down exactly what chargebacks are, and give you actionable advices on how to reduce chargebacks and protect your sales.

Let’s begin with the obvious question…

What is a Chargeback?

Do you own a credit card? If so, you, “the cardholder”, will have received that card from an “issuing bank”. Those issuing banks are required to provide consumer protection which gives cardholders “reversal rights”.

This means that cardholders can contact their bank and initiate the “chargeback” process. Essentially, this is a request to reverse a payment on their account. If their claim is deemed legitimate this is bad news for the merchant, who will be forced to return the full amount of the funds along with a “chargeback fee” (and sometimes, other associated costs such as exchange fees).

It’s worth noting that even if the transaction is proved to be legitimate, in most cases merchants will still endure processing fees. In the majority of territories, the window for initiating a chargeback is between 120-180 days, but sometimes cardholders can have up to two years after the date of the sale to issue a chargeback.

Before we learn how to reduce chargebacks, we must ask why cardholders would initiate a chargeback.

What are the reasons for Chargebacks?

Reasons for a chargeback being initiated by a cardholder are varied and numerous. Issuing banks have their own “chargeback reason codes” which are used to give structure to the chargeback process and provide all involved parties with information and guidance.

Although each individual case will be different and of course errors can be made by acquirers, card issuers and cardholders during a transaction, the majority of cases can be attributed to the same few reasons.

Customers may dispute a transaction because:

A credit has not been processed when the customer expected it would be

There are instances where a customer is unhappy with their product or service and request a refund, which is granted by the merchant. However, it is imperative that merchants return the credit promptly and notify the customer that they can expect to receive the credit soon.

If merchants fail to take these steps, customers can become frustrated, impatient and believe that they have been scammed and they will initiate a chargeback.

Merchandise ordered was never received

Naturally, if a customer pays for a product but does not receive it, they will initiate a chargeback through their issuing bank. It is important that merchants are timely in delivering their products and that customers are kept informed throughout the delivery process.

A service was not performed as expected

The delivery of poor or misadvertised service can be grounds for a chargeback. Upon completion of the service, customers can decide that the service they received was subpar and initiate a chargeback with their issuing bank. If a product differs from its online description (“not as described”), the cardholder will have ground for issuing a chargeback. 

Fraud/Authorisation Errors

If a cardholder has the bad fortune of having their card or account targeted by fraudulent use, they will naturally attempt to reverse any transactions that were carried out in that period.

Unfortunately fraudulent transactions do happen, and in this circumstance, it is imperative that merchants resolve this case with issuing banks: consistent fraudulent transactions can reflect badly on merchants in the eyes of issuing banks.

As with customer disputes, there are also concrete steps that you can take to limit the number of fraudulent transactions you process. 

Processing errors

Mistakes happen. We all know that. Processing errors are another common reason that cardholders initiate the chargeback process, and unfortunately those instances can sometimes be out of our hands. 

With that said, sometimes the frequency and severity of mistakes can be mitigated by improving your knowledge and understanding of the chargeback process.

If you would like to read more about why a cardholder might initiate a chargeback, Visa explore this in theirChargeback Management Guidelines for Visa Merchants.

Let’s take a look at the chargeback process now.

What is the Chargeback process? 

The chargeback process varies according to the issuing bank, and whether the cardholder has a card belonging to Visa, MasterCard or another credit card scheme.

To help you visualise this process give you a better understanding of how it works, here is a diagram that helpfully displays the process.

Although there are slight differences in the process for Visa and Mastercard, the chargeback process can essentially be divided into six steps

1. The cardholder initiates the chargeback by contacting their issuing bank.

2. The issuing bank then forwards this information to the merchant’s bank.

3. The merchant bank can either resolve the issue, or forward the information to the merchant.

4. The merchant can now either accept the chargeback, or provide evidence to contradict it.

5. The merchant bank can then review the evidence submitted by the merchant before submitting it to the issuing bank once more.

6. The issuing bank then decides whether or not to deem the chargeback valid or invalid depending upon the evidence submitted by the merchant.

How can Merchants reduce Chargebacks?

Now that we have established chargebacks are, why a cardholder might initiate one and what the process is, it’s time to take a look at actionable, concrete steps that you can take to reduce chargebacks placed against you as a merchant.

Prevent fraudulent transactions and unauthorised use of cards

Fraudulent transactions spell billions of lost revenue for online merchants each year. With 55% of credit card fraud targeting ecommerce, this unfortunate truth means that you need to be as vigilant as possible in identifying potential issues or ‘red flags’ in your transactions, and work on acting on those to ensure safety from chargebacks.

Here are some of the key ‘red flags’ you will need to look out for:

Odd behaviour

A lack of interest in offers or price specifics

No interest in company policies


Rushing shipment on large orders

International shipping requests

Transaction issues

Spelling errors or over-use of capitalisation

Confusion/mistakes around personal information

Declined purchases followed by smaller and smaller orders


New customers that place larger-than-normal orders

Ordering large amounts of the same item in different colours and sizes

Large orders with multiple payment cards

Multiple purchases

Multiple orders shipping to the same address which have been made with different cards

Different orders made using the same IP address with different cards

Multiple orders with similar card numbers

When it comes to acting on these red flags, many of your main defenses revolve around research into your customer.

If you suspect that you are being targeted by a fraudster, you can make efforts to reach out to the customer over the telephone, or Google the address and name that has been given to you. You could also request a scan of an official piece of identification or search for the user on social media.

If the order turns out to have been made by the cardholder themselves, they will be very likely to appreciate the extra lengths that you went to in an effort to ensure the safety of their information and account.

If you would like some additional information on red flags, we recommend this resource from Monica Eaton Cardone.

Also, the helpful diagram above was produced by Chargebacks911 and can be found in this very informative post. This article does a good job of simplifying the chargeback process and should be considered as great complimentary reading on this subject.

1. Eliminate ‘Friendly fraud’ with the relevant information

“Friendly fraud” occurs when a customer initiates a chargeback after having received their product or service perfectly well. Sadly this is a common and unfortunate practice that will impact on every merchant at one point or another.

Cases in this category are generally divided into two sections; accidental and deliberate. Deliberate, as the name suggests, occurs when a customer knowingly attempts to commit fraud and get the product or service for free, while accidental could be when a customer does not properly identify a charge on their account.

Given that these types of fraud are so difficult to avoid, best practice would suggest that merchants allocate funds in order to offset fees associated with friendly fraud. That said, it is advised that you collect as much information as possible about your customer to put you in the best position when disputing the chargeback.

Taking this step will help you to provide the issuing bank with detailed information about the customer when disputing the chargeback. For example think personal information, IP address and any email communications.

2. Describe your product or services clearly

Have you ever purchased a product and been dismayed to realise that it did not meet your expectations? Or perhaps you have noticed a charge on your statement that you didn’t remember making because the billing descriptor is incorrect.

In these situations where product descriptions or important data is unclear, it is understandable that customers initiate a chargeback.

To avoid these types of chargebacks, it is important that you check and double check that all of the information about your product or service is totally and completely accurate. In addition to images and clear product descriptions, list the full price which includes any other fees.

Here is a checklist of some of the key areas you will want to check for accuracy:

Product description

It is important that your description accurately describes the product or service that you are offering. If a customer feels that they have been misled and sold an inferior or incorrect item, they will initiate a chargeback. 

Product price

Of course, the prices that you list must be accurate. If a customer identifies a mistake or incorrect charge, they will initiate a chargeback.

Billing currency

The currency that a customer conducts that transaction in can have a large impact on the final price when considering exchange rates and additional fees. It is important that the currency listed is accurate.

Billing descriptors

The billing descriptor is simply the merchant information that appears on statements. To avoid chargebacks it is important that you ensure your billing descriptor is accurate, easy to recognise and clear. If a customer fails to recognise a charge they may accidentally identify it as potentially fraudulent and initiate a chargeback.

Beyond these points, it’s time to take a look at how customer support can help you reduce chargebacks.

3. Provide best-in-class customer support

One of the most potent ways you can reduce chargebacks in the customer disputes category is to offer winning customer support that keeps your customers engaged, informed and comfortable.

For example, let’s say that a shipment has been delayed due to an unforeseen event in your supply chain. It should be a top priority to combat chargeback requests by ensuring that your customers are aware of any impending delays or complications they might experience with their order.

It is also very important that you offer best-in-class customer support that is easily accessible. With only 14% of customers contacting merchants before initiating a chargeback, you want to make sure your contact information is clearly available, and that your customers can reach you easily to resolve any issues.


The team at Paydoo hope that this preliminary guide and introduction to the basics of Chargebacks has been useful for you. Visa and MasterCard rules are continuously changing and evolving, but we will of course keep you informed with the latest developments and changes regarding Chargebacks.

In the meantime, the Paydoo Risk Team remains at your disposal should you have any further questions or enquiries: contact@paydoo.com


Want to know more?

Let’s talk! We’ll be happy to help you find the best solution
for your business!

Get Started arrow