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Four ways retailers can minimize chargebacks


Retailers refund billions of dollars to customers every year in the form of chargebacks. Only 6% of merchants claim to be unaffected. Twenty-five percent say the pandemic-driven boom in online shopping has come with a significant spike in chargebacks.

It's easy to think that chargebacks are just part of the reality and cost of doing business. But that's not the case. Retailers that take a proactive approach to chargebacks stand to win as they avoid becoming part of these statistics. Here we look at four ways merchants can get on top of chargebacks by stopping them happening in the first place.

1. Understand the problem

Knowing how many chargebacks your business processes will tell you how much of a priority it should be. It's also important to understand where those chargebacks are happening, so you know where to focus your efforts. 

For example, is there a particular product line where chargebacks occur more than usual? That could point to an issue with the product’s quality. Or are chargebacks higher in some markets than others? If so, there may be a problem with delivery in that market. And what about the way customers pay; do some payment methods result in more chargebacks? If so, you may want to encourage customers to pay another way. 

Having access to granular chargeback data will put merchants ahead of the game — 67% say they do not receive fraud and chargeback analysis data.

2. Look after your customers

Merchants should offer great customer services and make it a disgruntled customer’s first port of call. They may have been turning to chargebacks because they were not sure how to get hold of someone in your team to lodge a complaint.

Some chargebacks happen because customers don’t trust the merchant to make amends. So building trust is key. Regular and clear communication goes a long way. A customer who understands exactly where their package is in transit will be less likely to worry if it’s late arriving. Better still if they’ve been given lots of choice about when and where to deliver it. 

An available and professional customer support service can help allay customer concerns or defuse complaints. And should all else fail, an easy, flexible (and findable!) returns and cancellations policy can address most other issues, from buyer remorse to a faulty product. 

3. Build your first line of defense

The best way to combat fraudulent chargebacks is to stop them at the source. Merchants have a range of weaponry at their disposal. 3DS2 capabilities should be the minimum level of protection. For those with more ambition, more data is the answer. Fraud engines that employ machine learning and behavioral modeling techniques will be more successful at spotting suspicious activity. Even friendly fraud can be identified with ongoing monitoring and maintaining lists of risky shoppers. 

Vigilance is key. Fraud has a tendency to change form. The more data you can call on, the more your fraud engine can learn and adapt. Flexibility also counts. Not every merchant has the same appetite to fight fraud, and so applying generic rules is likely to either fall short or be over-the-top. Instead, a toolkit that allows you to dial-up (or down) different anti-fraud measures will be more consistent with your overall business strategy. Automation matters too. Fraud needs to be fought in real-time. The fewer hops (and fewer humans) between finding potential fraud and blocking the transaction, the more you can scale prevention.

Checkout explains...3D Secure 2

  • 3D Secure was introduced in 2001 as a way of combating rising credit and debit card fraud. It required shoppers to actively prove their identity with a password or code. 3DS products included Verified by Visa, Mastercard SecureCode and American Express SafeKey.
  • 3D Secure 2 (also called EMV 3-D Secure, 3D Secure 2.0 or 3DS2) introduces a more sophisticated and less disruptive authentication process by automatically providing data to the customer’s bank to prove or question their identity. Other than its inherent value to merchants in combating fraud, 3DS2 is key to complying with new payment regulations, such as Strong Customer Authentication (SCA) in the EU. Examples of 3DS2 solutions include Visa Secure and Mastercard Identity Check.

4. Define your appetite

Some merchants may be wary of increased security — and friction — at the checkout. Defining this sweet spot allows a merchant to employ the right balance of preventive measures. Merchants may find that the additional friction costs more in shopping cart abandonments than chargebacks. The same logic goes for improving customer service. If it’s more expensive to do that than the overall cost of chargebacks, then you could be worse off.

But merchants should not see this as a straightforward trade-off. In truth, it is always more nuanced. For example, customer service gains can take time to realize. A long-term analysis of their impact on reducing chargebacks is needed. Moreover, enhanced security versus transaction volume is somewhat of a false dichotomy. Fraud prevention measures can just as effectively enable conversion and revenue. Today’s online shoppers are security savvy, and increasingly value measures designed to make their payments safe. For example, in APAC 68% of consumers say they have abandoned the cart because they didn’t feel confident in the security of the checkout.

As important is how card networks and issuers monitor chargebacks. Merchants with high chargeback rates are being met with more punitive actions, including stricter enforcement of anti-fraud rules (and so more chance that even genuine transactions will be rejected), and even expulsion from schemes.

“A common misconception is that fighting fraud is about minimizing the amount of fraud. Instead, it’s about maximizing conversion and revenue by ensuring as many ‘good’ customers get all the way through.” (Alexander Eliseev, Senior Product Manager,

Passive merchants also ignore that fraud moves around. Not keeping up with security standards today makes you a softer touch tomorrow. And it’s much harder to fight fraud on your doorstep, than keeping it at bay. That’s when fraud and chargebacks can become debilitating. 

“If you have high levels of fraud, you will not have much breathing room to take risks. You may want to quickly implement some innovative services, but you can’t afford to take the risks that new fraud cases would bring. So lower levels of fraud mean you can have more strategic freedom,”

Alexander Eliseev, Senior Product Manager,

Find the balance with the right payments partner

Turning all this theory into practical tactics comes down to finding the right partner. For payment related actions, what counts is scale. A payment partner with more data, from more sources, over a longer period of time can fine tune their machine learning models. And the more data they collect and work with, the more they assist merchants to stay ahead of the curve. 

Importantly, though, your payments partner should know how to tailor your risk strategy to your business. The best chargeback strategies are multi-dimensional. As we have read, different products and markets may require different approaches at different times. Having a toolkit that can employ these distinctions ensures that your chargeback strategy is aligned with your business strategy, rather than working in isolation or even in opposition to it. 

“A chargeback and fraud strategy is complex and must be unique to each business. Having a flexible tool allows you to mould your strategy to your needs,”

Alexander Eliseev, Senior Product Manager,

To find out more, contact our team of payment experts, or visit our Disputes API Documentation for more information.