9 ways to prevent chargebacks and protect your business

Key takeaways:

• While chargebacks are designed to protect consumers, they may also create an opportunity for friendly fraud that can hurt your business.

• Preventing chargebacks helps protect your revenue, reduce labour costs, and avoid unnecessary fees, keeping your business running smoothly, even in the event of a dispute.

• A mix of operational best practices and investing in a robust payment solution can minimise chargebacks.

Chargebacks are designed to protect consumers from fraud, but customers sometimes use them to address returns and customer service issues that can be easily resolved through direct communication. The global chargeback volume could reach 337 million by 2026 – a 42% increase from 2023,¹ making it harder for businesses to protect their revenue from fraud and chargeback fees.

Learning how to prevent chargebacks can help you maintain customer satisfaction while protecting your bottom line. Explore our top tips to protect your business below.

What are chargebacks?

Chargebacks are disputed card payments. When a chargeback is initiated, the card issuer investigates the claim and if the dispute is valid, the issuer refunds the customer and the merchant is charged a fee.

Chargebacks protect consumers from fraudulent transactions, transaction errors, non-delivery of goods or services, or unethical business behaviour, like shipping low-quality products that don’t match their descriptions.

However, cardholders can sometimes misuse this protection and can impact your profit margin. In fact, “friendly fraud” accounts for 80% of chargebacks,² often occurring when a customer disputes a charge to avoid a return, claims fraud without evidence, or simply regrets their purchase.

For merchants, this can lead to increased scrutiny from credit card companies, as well as higher processing fees, chargeback fees, and financial losses from the transaction cost and the product or service provided. The cost of friendly fraud can quickly add up, damaging both your revenue and your relationship with payment processors.

To help reduce customer confusion, prioritise clear and accurate product descriptions, shipping and payment options, robust customer service, and delivery timelines. Some businesses go a step further and use fraud detection tools to identify and prevent suspicious transactions.

The real cost of chargebacks

Chargebacks can cost businesses not only the amount of the disputed transaction but additional fees ranging from $20 to $100 per chargeback. This can also result in loss of goods or services, increased processing fees, and potential account termination if chargeback rates are too high.

The time and financial costs add up quickly. This is a growing concern as 27% of businesses reported that chargeback rates had increased in 2022,³ and we’ve already seen estimates that this trend will continue.⁴

Some chargebacks are inevitable, but the real concern is if you consistently have high rates of disputes. High chargeback rates incur extra fees and can damage your relationship with financial partners, including your bank, acquirer, and other services.

You can prevent chargebacks with a mix of operational best practices and quality payment services like Airwallex that help you reduce fraud, avoid unnecessary chargebacks, and improve your customers’ experience.

9 ways to avoid chargebacks

Chargebacks are an important consumer protection measure that's necessary, but you can help reduce fraudulent chargebacks and the associated fees and time lost to chargeback disputes.

1. Secure online payments against fraud

Chargebacks are designed to help consumers fight fraud, so investing in fraud prevention and security to reduce the need for chargebacks is priority number one.

Some payment service providers, like Airwallex, feature AI-powered fraud detection tools to identify and block suspicious transactions. Also, additional security measures like 3D Secure (3DS) authentication can trigger two-factor authentication (2FA) to verify customer identities and avoid fraud.

2. Enrol in chargeback programmes

Credit card companies don’t like chargebacks any more than you do. To help monitor and reduce fraud, many card companies require that merchants join a chargeback programme that tracks chargebacks and provides reporting guidelines for merchants to follow. Each programme varies, but the end goal is the same. 

Chargeback programmes ask merchants to track data according to the credit card company’s regulations, which may include:

• Reasons consumers initiated a chargeback

• The rate of chargebacks as part of total sales

• Separate insights on card-present and card-not-present chargebacks

Chargeback programmes receive and assess this data to identify any concerning merchant trends. If they find you’re particularly high risk for chargebacks, they’ll notify your merchant acquirer. You’ll then work with them to identify why chargeback rates are so high and craft a plan to reduce them.

Credit card companies also have additional chargeback programmes, like domestic vs. international chargeback reduction programmes, to support merchants that fail to meet reporting requirements or otherwise can’t meet appropriate chargeback rates.

Since merchants and their acquirers are responsible for monitoring and correcting chargeback ratios, choosing a strong merchant acquirer from the beginning is a great way to avoid penalties and manage chargeback rates effectively.

3. Partner with a provider that can help you manage disputes

If you offer multiple payment methods, dealing with chargebacks can become a headache as different methods may have different procedures for handling chargebacks, which can complicate the process of managing and responding to them.

Providers sometimes have a unified dispute resolution service as part of their payment processing solutions. This service helps businesses resolve disputes on a single dashboard, making it easier to track and respond to them.

The system can also auto-generate responses to common dispute types, saving you time and effort. While it may not help you avoid chargebacks entirely, it is one way to reduce the overall financial impact.

4. Create crystal clear return policies

Some consumers find chargebacks ‌an easy way to refund a purchase without the hassle of a return, which is a form of friendly fraud. However, clear return, refund, and cancellation policies can help you combat this.

Clearly document your policies throughout checkout and require customer confirmation and reinforce them in post-purchase emails to ensure transparency. Make returns and refunds simple and accessible. When customers struggle to get support or face high return fees, chargebacks can become more tempting.

Although it might seem counterintuitive, providing returns can be less costly than losing the sale or managing a dispute. Smooth returns also boost your overall customer experience and reduce the likelihood of chargebacks.

5. Design detailed product descriptions

A fair number of chargebacks happen because the product doesn’t match its description or doesn’t meet customer expectations.¹ Accurate and detailed product descriptions help customers make confident, informed purchase decisions, which can‌ reduce your chargebacks.

Customers are less likely to dispute charges when they receive what they expect. Product descriptions can also increase sales by better supporting purchase decisions. Additionally, well-written copy can also increase a search engine’s understanding of your product, increasing your visibility in search results.

6. Confirm orders and shipping details

A common cause of chargebacks is confusion over missing items, which can usually be prevented through clear communication. Ideally, customers would request a refund or replacement, but issues like unclear shipping expectations, delayed order fulfilment, or inadequate documentation often lead to disputes instead.

Set clear expectations on when a product or service will arrive by communicating order fulfilment timelines and shipping estimates. Confirmation emails and updates throughout the shipping process also keep customers informed, so include key details like:

• Order tracking number for shipping updates from the carrier.

• Billing and shipping address confirmation so customers can catch any mistakes before you ship.

• Refund and return policies so customers can work with you to correct missing or incorrect orders.

7. Prioritise great customer service

Accessible and helpful customer service channels encourage consumers to contact you about concerns instead of disputing a transaction. Many chargebacks are caused by issues that you can easily resolve, such as missing or incorrect items.

Many customers will happily follow the proper procedures if they understand the support options and can contact you quickly. With chatbot solutions for 24/7 support and multiple live support options over email, phone, and text, good support services are easier than ever to offer.

8. Keep consistent company details and branding

Some chargebacks are a result of misunderstandings. Companies might have multiple names and acronyms or use a parent company title with certain accounts and processes. There are multiple reasons for this, but inconsistent branding can confuse customers and lead to chargebacks.

Let’s say a customer looks at a bank statement and sees a charge from “MCD Holding” – an unfamiliar company name. Here are two examples of how this may play out:

• The customer remembers that they grabbed lunch at McDonald’s, and the charge matched their meal prices. They realised that “MCD Holding” was a parent company for the restaurant they visited.

• The customer doesn’t recognise the charge and has never heard of “MCD Holding.” They’re worried it’s fraud and that their data is compromised, so they contact their financial institution and file a dispute.

You can’t control customer behaviour, but you can control your branding and communication by prioritising clarity and understanding. If your customers are familiar with one business name and brand, commit to using that name in all customer communications to reduce confusion and concerns. Many payment solutions make it easy to customise your notifications and descriptors according to your brand so you’re always recognisable.

9. Offer free trials or samples

Depending on your business, it might make sense to offer a free trial to entice customers who are still on the fence. SaaS businesses can offer temporary free trials or demos, while retail shops might offer free samples or first-time coupons.

In both cases, providing a taste of your offerings helps customers understand the product or service before they buy. When customers understand what they’re buying and are confident in their decision, they’re less likely to run a chargeback because of unmet needs or any product misunderstandings. It can also reduce refund and return requests and improve customer service and experience. 

Prevent chargebacks to protect your revenue

Chargebacks are designed to protect customers from fraud, but they also offer businesses valuable insights. By analysing chargeback trends, you can identify areas to improve customer service, refine your refund policies, and enhance product quality, ultimately strengthening customer trust while reducing disputes.

Airwallex Payments offers a comprehensive approach to fraud prevention and chargeback management. Their advanced fraud detection systems identify and block suspicious transactions in real-time reducing the risk of fraudulent charges.

Airwallex also supports pre-chargeback programmes like Visa Rapid Dispute Resolution and Mastercard Collaboration, helping you resolve disputes before they escalate into full chargebacks.

In some cases where chargebacks are unavoidable, Airwallex can support with our unified dispute management, helping you navigate the complex process efficiently.

By combining smart chargeback prevention strategies with Airwallex’s chargeback measures, and dispute resolution tools, you can reduce risk, save time, and protect your revenue.

Preventing chargebacks frequently asked questions

How do you dispute a chargeback?

To dispute a chargeback, follow these steps:

1. Review the chargeback and understand why the customer disputed the transaction.

2. Verify the expiration date for the response, and ensure you contest the dispute within the time frame.  

3. Collect evidence to prove the transaction was legitimate and the customer received the product or service as agreed. 

4. Submit a clear and concise response explaining why the chargeback should be reversed with supporting evidence. 

What are the three sources of chargebacks?

There are several reasons a customer would dispute a transaction and initiate a chargeback, and these all fall into three key sources:

1. Merchant error, like billing a customer twice.

2. Criminal fraud, like using a false identity or counterfeit card.

3. Friendly fraud, like running a chargeback instead of returning an item you’re unsatisfied with.

Is it worth fighting a chargeback?

Fighting chargebacks isn’t always worth it. Contesting low-value transactions can cost more in fees and time, even if you win.

Use this ROI formula to decide if a chargeback is worth disputing:

(Amount recovered minus the cost of dispute), divided by the cost of dispute

If the ROI is positive, it generally makes sense to dispute the chargeback.

Sources:

1. https://www.paymentscardsandmobile.com/wp-content/uploads/2023/10/2023-Chargeback-Outlook-Report.pdf

2. https://www.chargeflow.io/blog/everything-you-should-know-about-friendly-fraud

3. https://www.checkout.com/blog/uncovering-the-hidden-trends-shaping-ecommerce

4. https://sift.com/blog/from-data-to-action-chargeback-trends-and-fraud-strategies-for-2025