How to Prevent and Fight Fraudulent Chargebacks

7 Min Read

Chargebacks occur when a credit cardholder contacts their card issuer and disputes a particular charge. When this happens, the card issuer will contact the merchant’s card processor to contest the sale. Chargebacks can be a potentially destructive force for an online merchant. Merchants are often assumed to be “at fault” when a customer requests a chargeback. Not only is the money deducted from your account when a chargeback takes place, but you may pay additional fees on top of the loss. On top of that, it’s doubtful you’ll ever recover the product/s you sold.

Unfortunately, chargebacks will happen, regardless of your preventative measures.  Credit cards can be stolen or misused by minors who do not have the permission of their parents. That doesn’t mean you can’t stem the tide by taking certain precautions to minimize chargebacks, especially those committed by “friendly” fraudsters. 

Avoiding chargebacks before the sale

Some customers feel duped by the product’s marketing hype upon receiving the product. Many chargebacks are the result of a customer not being satisfied with their product. Instead of reaching out to customer support to rectify their issue, they’ll call up their bank and ask for a chargeback like a refund. Offer an unambiguous product description, transparent shipping information, and billing information. Transparency can help reduce the number of chargebacks you receive.

If you’re offering recurring payments system, be very clear before the customer submits their order the billing terms and at which intervals for a subscription. Sending an email to the customer 24 hours before a recurring charge is to take place reminds the customer that they still have a subscription with your service, which allows them to cancel if they so wish. Large portions of chargebacks are due to a customer setting up a subscription and forgetting about it until a year later when they look at their credit card bill and notice a charge they had forgotten would occur. The customer probably still isn’t even using the service. When this happens, and the customer contacts you for a refund, it’s best to provide one. Quite often, if you say “no,” they’ll reach out to their bank and ask for a chargeback anyway!

Exercise due diligence when picking a merchant payment processor. Your payment processor is usually the one who will fight the chargeback on your behalf, if at all. Every payment processor has individual chargeback policies, so you need to check those before signing up. Some payment processors will cover chargebacks to a certain amount, or waiver the usual fees once a chargeback has gone through.

Beware of any large orders from new customers, primarily if the product usually sells in small quantities. Sometimes fraudsters will order large amounts to resell after charging you back. It never hurts to capture a customer’s phone number and make a quick phone call before shipment to confirm that they indeed want that amount.

Orders that request a rush delivery may be suspect when one is usually not necessary. It’s a red flag as a fraudster may want their hands on goods quickly before anyone catches on.

The same applies when a customer places orders in short proximity to one another. Most customers do not act this way, and this unusual behavior should be readily noticeable. It’s okay to advise the customer that there will be a ‘cooling-off’ period between orders.

At the point of sale

Online sales often involved third party payment processors. Third-party payment processors have made doing business online much more accessible for many entrepreneurs who wouldn’t be able to process payments on their own. However, customers won’t always know that the charge is coming from you and not some random third party, so it’s best to spell that upfront when they place the order. Let the customer know the name of your payment processor, any suffix specific to your business you will be using, and the exact amount charged. It’s also a good idea to have your phone number or website address on the charge too. This information should be included in any follow-up emails too.

On the back of all credit cards includes three digits known as a CVV2 code. The code does not appear anywhere else except for on the card itself. Anyone who knows this code must have had the physical card in their possession at one point. Capturing the CVV2 should have the effect of cutting back on a lot of fraud. While fraudsters may be able to obtain the 16 digit credit card number fraudulently, it’s much harder for them to access the CVV code.

Using an AVS (address verification service) can help reduce chargebacks by verifying the address information on file for the given credit card number. Often, this is the ZIP/postal code, but it may be the full address too. If the information provided by the customer does not match up, the transaction will not proceed.

After the point of sale

If you’re selling tangible goods, not only is it excellent customer service to provide your customer with status updates on their order, but it also increases the customer’s sense of security in their purchase. For example, a customer is more likely to ask for a chargeback if it’s been two weeks with no word from the seller. Updates after the order can save you a lot of headaches.

Often, it just makes more sense to refund the customer rather than drag out a chargeback process if the customer has been threatening one. You won’t lose to chargeback fees, and the customer very well may make another purchase in the future.

To sum it up, once you’ve gotten a chargeback notice, do not hesitate to respond quickly. In the case of chargebacks, time is money.

Questions call iPayTotal now… Email us at or call us at +44 800 5988.

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