Chargebacks occur when customers dispute transactions with their card issuer.
They can be particularly problematic for online stores that process a large number of transactions.
The holiday season is an ideal time for businesses, often generating a marked increase in sales as customers shop for gifts, holiday supplies and end-of-year offers.
However, this increase in business is also accompanied by a less favorable trend: a rise in credit card chargebacks.
Managing your chargeback rate is crucial to maintaining the health of your business.
Credit card networks and payment processors generally expect merchants to maintain a chargeback rate of less than 1% of total credit card sales.
Exceeding this threshold can have serious consequences, such as penalties, higher processing fees, or even the suspension or termination of your merchant account.
Such outcomes can disrupt operations and tarnish your reputation.
The good news is that you can take proactive steps to reduce the likelihood of chargebacks, ensuring smoother transactions and better relationships with customers and payment processors.
By implementing proven strategies, you can protect your business from unnecessary litigation and financial loss.
Let’s dive into the best ways to effectively avoid chargebacks.
1. Efficient use of the address verification system (AVS)
AVS is a security tool used in credit card transactions, mainly online or by telephone ("cardless" payments).
It verifies that the billing address provided by the customer corresponds to the one registered with the card-issuing bank.
- Always require a valid and complete AVS response . Avoid processing transactions with incomplete or negative AVS results, as these are often linked to chargebacks.
👉 Payments with negative AVS are statistically much more exposed to chargebacks.
By applying a strict AVS policy, you strengthen your financial protection and improve your success rate in the event of a bank dispute.
2. Ship to billing addresses with tracking
- Ship high-value or low-margin items only to the cardholder's billing address.
- Use traceable shipping methods and aim for delivery confirmation. If possible, obtain a signature on delivery to strengthen your defense in the event of a dispute.
👉 This logistical evidence is key to effectively defending your transaction with banks and increasing your chances of success in the event of litigation.
3. Include customer service phone number
- Make sure your customer service number appears on all invoices and on the customer's credit card statement.
👉 The absence of a contact number often leads to unnecessary chargebacks simply because customers can't reach you.
4. Keep detailed sales records
- Keep well-organized records, including sales drafts and invoices, as disputes can arise months later.
👉 Clearly written documentation reduces misunderstandings and protects you from chargebacks.
5. Contact customers regarding recurring transactions.
- Inform customers of upcoming direct debits before processing recurring transactions.
👉 Sending invoices in advance reduces surprises and gives customers the chance to cancel before resorting to a chargeback.
6. Respect refused authorizations
- Never attempt to process a declined card by reducing the transaction amount or trying again.
👉 Continuing to force rejected transactions may result in additional chargebacks.
7. Clearly display refund and return policies
- Make your refund and return policies visible on your website and invoices.
👉 Transparency helps define expectations and minimize disputes.
8. Check for suspicious transactions
- If you suspect fraud, initiate a "CODE 10" authorization to verify the cardholder's identity.
👉 This precaution can prevent fraudulent chargebacks and protect your business.
The cost of chargebacks
Banks generally charge a fee for each chargeback, ranging from $15 to $100 per case, depending on the payment processor and the merchant's agreement.
These fees are charged regardless of whether the dispute is resolved in the merchant's favor, adding to the financial pressure.
What's more, when a chargeback occurs, the product or service concerned is often irretrievable .
For physical goods, this may mean that the item is not returned by the customer or is returned in unsaleable condition.
For digital products and services, the value provided is irretrievably lost, compounding the financial impact.
Beyond these direct losses, chargebacks can also entail indirect costs, such as higher transaction fees or stricter conditions from payment processors.
Frequent chargebacks can even result in the merchant being classified as "high-risk", compromising its ability to process payments.
Customer service: your first line of defense!
Excellent customer service is essential to prevent chargebacks.
By responding quickly to customer concerns and ensuring their satisfaction, you can reduce the likelihood of disputes.
Keep the lines of communication open and strive to resolve problems before they escalate.
Chargebacks are a major threat to businesses, especially during the holiday season.
By applying these best practices, you can protect your business and provide a smoother experience for your customers.
Happy holidays and success in your digital marketing efforts!
Do you have any questions? Contact us!
FAQs - Chargebacks :
1. What is a chargeback in e-commerce?
A chargeback is a payment cancellation initiated by the customer's bank.
It occurs when a buyer disputes a transaction. The amount is then withdrawn from the merchant's account, which can result in a direct financial loss.
2. Why do chargebacks occur?
The most common causes include :
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Suspected bank fraud or stolen card.
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Product not received or late delivery.
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Non-conforming or damaged product.
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Billing error, double transaction.
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Friendly fraud: the customer has received the product, but disputes the payment.
3. Are chargebacks always legitimate?
No. A large proportion of chargebacks are related to friendly fraud, a fast-growing phenomenon. In this case, the chargeback is unjustified, but remains costly for the merchant.
4. What impact do chargebacks have on an online store?
Chargebacks can have a serious impact on your e-commerce business:
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Loss of income.
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Chargeback fees (Stripe, PayPal, etc.).
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Deterioration of your chargeback rate.
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Risk of suspension or closure of the merchant account.
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Classification as a high-risk merchant.
Reducing chargebacks is therefore essential to the sustainability of your online business.
5. Can I dispute a chargeback?
Yes, it is possible to contest a chargeback with solid evidence:
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Proof of delivery (tracking, signature).
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Invoice and order confirmation.
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History of exchanges with the customer.
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Terms and conditions of sale accepted.
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Photos or videos of the product shipped.
The more complete your file, the greater your chances of winning the challenge.
6. What's the difference between a standard refund and a chargeback?
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A refund is initiated voluntarily by the merchant.
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A chargeback is imposed by the customer's bank and incurs additional costs.
Merchants always prefer to manage a dispute by direct refund rather than suffer a chargeback.
7. What should I do if my e-commerce business receives too many chargebacks?
It is advisable to :
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Audit your sales and delivery processes.
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Optimize your product pages and refund conditions.
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Strengthen your fraud detection systems.
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Contact your payment processor to set up a remediation plan.
Being proactive is the key to avoiding account suspension.
8. How long does a chargeback procedure take?
The duration depends on the customer's bank and the payment processor (e.g. Stripe, PayPal). In general :
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15 to 45 days for the first analysis.
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Up to 90 days for in-depth investigations.
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Up to 120 days for certain networks (Visa, Mastercard).
During this period, the transaction amount remains blocked or debited from the merchant account.
9. What is the acceptable chargeback rate?
Payment processors recommend a rate of less than 1%.
Beyond :
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Risk of being classified as " Merchant at Risk ".
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Higher costs.
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Your account may be suspended.
A high rate also impacts your reputation with banks.
10. Which sectors experience the most chargebacks?
The industries most affected are :
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E-commerce (physical products).
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Subscriptions & recurring services.
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Digital products.
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Cosmetics / well-being.
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High-ticket & coaching.
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International sales.
These sectors are often associated with more disputes and friendly fraud.
Do you have any questions? Contact us!
About The Author:
Serge Daudelin is a seasoned digital marketing expert with 23 years of hands-on experience in SEO, content writing, and paid advertising (PPC). Also a digital marketing consultant, he helps businesses optimize their online presence and achieve measurable results.
Concrete content to take your marketing to the next level
Contact us today to learn more about how we can help your business reach its goals in terms of digital marketing!
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