A chargeback occurs when a customer disputes a transaction with their bank for various reasons, leading to the reversal of the credit card transaction. This process is designed to protect customers from fraud or unauthorized transactions. Customers tend to escalate in this way when:

• Their card was stolen or they didn’t authorize the purchase.
• They need to fix a mistake like a duplicate charge.
• They’re unsure how to contact you to request a refund.

As a merchant, you can choose to either dispute the chargeback by filing evidence with the cardholder’s bank, or choose to accept the chargeback and release the funds to the cardholder. Once a chargeback has been filed, the disputed funds will be put on hold until the case has been resolved.

What is the difference between chargebacks and refunds?

When a customer requests a refund from you, you are in control of the disputed funds. You can issue a refund directly to the customer in the payment type and amount you choose.

With a chargeback, the customer’s bank is in control of the funds, and pulls the disputed funds as soon as the chargeback request is filed. Once a chargeback has been filed, you will see the chargeback appear in your transactions report along with the non-refundable chargeback fee.

Once a chargeback has been filed, you cannot issue a refund directly. Learn more in Managing chargebacks.

What is a chargeback rate?

Your chargeback rate (or chargebacks-to-transactions ratio) is typically calculated by dividing the total chargeback cases received per month by the number of total transactions processed that month.

If your chargeback rate becomes too high, you may be classified as a high-risk merchant. A pattern of consistent chargebacks can signal risky behavior to banks and payment processors, potentially resulting in you paying higher processing fees or certain credit card companies disqualifying you from processing credit cards altogether.

Types of chargebacks

• Fraudulent transaction: Cardholder didn’t authorize the transaction, like when a card is stolen or used without the cardholder’s permission. Fraudulent transactions are the most common type of chargeback.
• Unrecognized transaction: Cardholder doesn’t recognize the business name or transaction details on their statement.
• Duplicate transactions: Customer believes they were charged more than once for the same product or service.
• Canceled merchandise or service: Customer is charged for an order or service they believe they canceled.
• Product not received: Customer claims they paid for an item but never received it.
• Product unacceptable: Customer claims a product was defective, damaged, or not as described.
• Credit not processed: Customer expects a refund but claims they never received it.
• General disputes: Chargeback doesn’t fit into the other categories.

Preventing chargebacks best practices

Chargebacks are an unavoidable part of accepting credit cards, but there are some proactive measures you can take to reduce your exposure to fraud and disputes.

Use secure payment methods

For in-store payments, always use a payment terminal to tap, insert, or swipe cards, or use contactless payments like Google Pay and Apple Pay.

For online payments, ensure all transactions are processed through the secure payment gateway with fraud detection features like address verification and CVV checks.

Avoid manually entering card details unless absolutely necessary. Manually entering card details shifts the liability for fraud to your business.

Watch for unusual patterns and review suspicious high-value orders

Keep an eye out for suspicious behaviors like:

• Multiple orders from the same account in a short amount of time.
• Different cards used by one customer.
• Unusual order size.
• Multiple failed payment attempts or multiple instances of different incorrect expiration dates or CVV numbers.

Pay extra attention to large or high-value orders. Verify that the shipping address matches the billing address and if there is a mismatch, verify the cardholder’s identity to confirm the order is legitimate.

Trust your instincts if something feels off with an order and investigate before completing the order.

Be transparent about fees and policies

Although not a guarantee, if you're transparent with your policies and customers are aware of them beforehand, they may be less likely to file a chargeback.

• Ensure your refund, return, and cancellation policies are easy for customers to find and understand. Consider including terms and conditions on your receipts and on your website.
• Be clear about any taxes, shipping or delivery fees, or other charges associated with the transaction.
• Allow customers to cancel their order if they don’t agree to the terms.

Communicate promptly and clearly with customers

If resolving an issue with you is easier than initiating a chargeback, customers will be less likely to file a dispute. Make sure your communication is clear and proactive:

• Provide accurate product descriptions and service details, including features, specifications, care recommendations, and limitations.
• Send reminders for recurring charges and subscriptions. Consider adding information about cancellation cutoffs or links to the terms and conditions.
• Send confirmation receipts for online orders that include your business name, date, amount, items, and shipping/delivery information when available.
• Make your contact information easy to find and post it on your website and receipts.
• Offer customer support through multiple channels like email, phone, or chat and respond quickly to customer complaints.
• Ensure the business name that appears on customers’ statements is one they’ll associate with your business, so they recognize charges on their credit card statements. To update the business name that shows on customer statements, contact Payments Support.

Track shipments

Be clear about shipping or delivery processes and clearly communicate when a customer should expect their order to ship.

• Use reputable shipping carriers that provide tracking information and share that tracking information with the customer. For high-value items, require a signature upon delivery.

• For in-store pickup orders, require identification or signatures to ensure you have evidence the sale was legitimate and the goods were received by the customer.

Preparing for chargebacks best practices

Maintain detailed records

Keeping detailed records will help you resolve issues faster and provide documentation when challenging chargebacks.

• Keep detailed, organized records of receipts and transaction records.
• Provide proof of shipping and delivery, such as tracking numbers or signatures of receipt.
• Keep written records of customer communication and cancelations.

Train your staff

Training your staff is an important part of providing good customer service and reducing the risk of customer dissatisfaction and fraud.

• Ensure your staff know how to handle secure transactions and spot suspicious activity.
• Train staff on company policies and how to communicate them to customers.
• Make sure staff know how to handle customer complaints and understand your procedures for resolving issues.

What’s next?