Chargeback prevention: 7 tips for e-commerce merchants to prevent financial losses

November 26, 2021
November 26, 2021
Chargeback prevention

The chargeback process was designed as a consumer protection mechanism to shield vulnerable customers from the impact of fraud and credit card theft. Unfortunately, chargebacks end up penalizing retailers severely, as they almost never see the product or service returned — on top of losing the original transaction amount. And with chargeback incidents on the rise, online retailers are well-advised to proactively implement chargeback prevention measures as part of a broader payment fraud protection strategy. The following tactics and best practices can help e-commerce store owners mitigate the risk of chargebacks as well as protect customers against online fraud.

What are online payment chargebacks?

Chargebacks are issued when customers report to their credit issuers that their charge card has been used in fraudulent transactions. Originally developed to protect customers from the unintended purchase of damaged/faulty products or falsely advertised offerings, the chargeback concept has now expanded to help in the recovery of stolen money. Chargebacks are initiated by a bank, or credit card company on behalf of the customer. Instead of confronting merchants directly, customers appeal to their credit card issuers, who can reverse the transactions if they deem it appropriate to do so (e.g., the item purchased was faulty, or it was purchased in a scam/fraud situation).

For example, if a credit card number is stolen by a malicious actor and used to purchase an item, the credit card company could issue a chargeback for the purchase value. However, no party is obligated to recover the purchased item(s),, which is of course an issue for the retailer. Along with the transaction cost, merchants are liable for the cost of shipping/packaging, and other expenses already incurred.

What are the typical reasons for payment chargebacks in e-commerce?

There are three main reasons for issuing a chargeback:

  • Merchant error: if the goods or services purchased are faulty or not what was promised/advertised, the customer may complain to their credit card company which could result in a chargeback being issued. This type of issue is why the chargeback mechanism was initially developed: as a way of ensuring the honesty of retailers and the integrity of transactions.
  • Criminal activity or fraud: when someone’s credit card information is obtained and used illegally by another malicious party. Credit cards now come with built-in protection for users that allows the issuer to reverse any fraudulent transactions.
  • Friendly fraud: this includes scenarios in which customers change their minds regarding a purchase. They may have not understood what they were buying, or may have realized they can’t afford to buy it after the fact.

Customers can claim a chargeback in any of these instances and aren’t obliged to return the item in question. Again, retailers in this case usually lose both the transaction amount and the item itself.

What strategies should e-commerce merchants follow to prevent chargebacks?

Online retailers can take several key measures for preventing chargebacks and protecting customers from fraud. Even though fraud victims don’t end up losing money in a chargeback, online retailers should do their best to save their customers from the potential hassle, and the resulting negative association with your brand.

Follow proper e-commerce merchant payment protocols

Following the correct payment protocols will allow e-commerce merchants to spot online payment fraud in action. This includes capturing the customer’s IP address, using CVV verification, and requiring proof of delivery. By following these guidelines, businesses can prevent fraudulent transactions from being approved in the first place, avoiding potential chargebacks.

Optimize the customer checkout experience

Merchant error and friendly fraud chargebacks often start with a customer complaint. An outstanding customer experience during checkout and with any support issues can help prevent chargebacks Since chargebacks occur when

the customer bypasses the retailer and goes straight to their credit card issuer, merchants should always be proactive in resolving matters quickly and amicably.

For example, chargebacks often occur when customers forget to cancel subscriptions and/or goods are shipped without their knowledge. Merchants can make it easier for customers to cancel subscriptions, or be forthcoming and reasonable with their refund policy to reduce chargebacks. In the case of a refund, merchants can at least potentially recover their inventory.

Provide optimal customer support

First-rate customer support is crucial for fostering positive relationships with customers — with open and responsive communications, chargebacks become unnecessary. Additionally, a merchant who can provide documentation of their positive support efforts (e.g., email exchanges with a customer regarding a friendly fraud situation) is better positioned to prove that the transaction was carried out in good faith and should be upheld.

Implement fraud prevention and detection tools

A wide range of techniques can be used to identify and prevent fraudulent transactions that could result in chargebacks. At minimum, alerts should be raised when anomalous purchases are detected (e.g., orders made from foreign countries and/or require shipping the items abroad). Unusually large purchases, multiple orders or failed purchase attempts within a short time span are also tell-tale signs of fraud.

Fingerprint’ device fingerprinting technology can help identify suspicious behavior patterns by flagging visitors with a history of fraudulent transactions — even if they are in incognito mode.

Improve the online store’s usability and user interface

Customers often resort to calling their credit card companies in frustration when they can’t find answers on the merchant’s website. Merchants can prevent chargebacks by improving their user interface and experience (e.g., user better product images, provide clear shipping instructions, update customers with notifications as their item is shipped).

Proper management of customer expectations reduces the likelihood of both merchant error and friendly fraud chargebacks.

Ensure that store policies and contact information are readily accessible

If customers can easily locate information and policies regarding returns, refunds, or alternative contact methods, they’re less likely to seek other means of remediation such contacting their credit card company.

The website should provide several methods of communication for the customer to resolve their issues—if too restrictive, they may opt to contact the credit card issuer and ask them to initiate a chargeback.


There’s no arguing that the safety and well-being of customers should be front and center; to this end, these critical chargeback prevention measures can both improve the security of transactions and prevent merchants from suffering a double loss.

All article tags

  • Ecommerce fraud
  • Payment fraud