Ecommerce Chargebacks: Taking the Offense

When a shopper argues the validity of a credit card purchase (also known as a chargeback), it's never good news for an ecommerce merchant.


According to annual reports from Visa subsidiary CyberSource, chargebacks continually account for nearly half of all fraud losses and online retailers are always the ones who suffer. 

Banks and card issuers will not only levy nonrefundable fines and penalties against merchants to cover their costs and associated fees, but chargebacks also cause havoc everywhere from CRM and ERP systems to inventory and financial reconciliations - not to mention the lost time, money, reputation and business opportunities.

There's no better time than now for retailers to be proactive (take the offense) in limiting chargebacks to keep their online businesses thriving.

First, merchants must realize consumers aren't the only ones to blame for the growing number of chargebacks. In fact, the practices employed by both parties are responsible for the fraud.

"Online merchants are often unknowingly (or even knowingly) employing questionable business practices, which induces chargebacks and actually encourages the problem instead of curbing it," said Monica Eaton- Cardone, founder of Chargebacks 911 (and former online merchant).Cardone says the top merchant practices that cause chargebacks are using automated answering services, offering automated rebate promotions and having no return policies. 


There are technical issues that can cause chargebacks, including payment-processing errors. There are also order fulfillment disputes, such as when a buyer claims to have never received the purchase or even friendly fraud when a consumer disputes the transaction even though the merchant delivered the product. 

Clerical errors (e.g. duplicate or incorrect billing or failure to refund), intensify the problem. Furthermore, hiding contact information deep within the terms and conditions page or in inconspicuous places actually spurs chargebacks. Finally, overpromising and under delivering in any part of the sales cycle is sure to create unhappy clients, leading to more disputes. Therefore, make sure all sales channels are appropriately marketing the product prior to consumer purchase.

To reduce and, in some cases, avoid chargebacks, merchants must take responsibility and stop ignoring the problem. Minimizing chargebacks related to fraud and duplicate transactions can start by stating clear terms and conditions that are easy to understand, posting returns and other policies in conspicuous places, and using a solid transaction verification or eSignature system. Whenever possible, include product images, videos, detailed descriptions, case studies, client testimonials and success stories to enhance shoppers' product understanding to ensure it meets their needs prior to purchase.

"Regardless of industry or company size, the number of chargebacks a seller experiences depends on how the products are sold online," said Dennis Wood, CEO of "Together, messaging, claims and transaction verification methods influence the operator's risk associated with chargebacks."

When retailers take the time to understand and meet buyers' expectations and provide customer-friendly support, they are more likely to create happy patrons who shop frequently, spend more and report fewer credit card contentions.

Next, take the time to understand clients and learn to recognize the warning signs. Watch for any shady transactions and questionable customer behavior. This may include individuals placing rushed or random orders, entering shipping addresses that differ from billing addresses, and being reluctant to furnish personal information such as contact information, notes Cardone.

Then, establish a strong customer-relationship strategy to stay in touch with the client. According to Wood, "Post-purchase support should be customercentric and available 24/7/365 if possible. This is critical in minimizing buyer remorse, dissatisfaction and remediation of chargebacks."

After the purchase, a merchant should always provide patrons with access to order fulfillment information and the terms in which the purchases were made. both experts agree that online shopkeepers should openly state time frames for order processing and send a personalized email confirmation, along with an order summary, within one business day of the original order. When an item is backordered, provide up-to-date stock information, including an expected delivery date. Also, be sure the merchant's credit card descriptor on the individual's statement includes a phone number that a real person answers within three rings.

"In the battle of perception versus reality, reality rules," Cardone said. "If a disgruntled shopper calls to resolve the issue, make sure to answer the phone quickly. It is a myth that most buyers who file chargebacks never attempt to contact merchants first. In reality, most of these calls end in hang ups once the hold music starts."

Once the person receives the order, contact him or her via phone or email. Reminding the shopper about the product's value reinforces the initial reason for purchase. In the message, the merchant should thank the patron for the purchase, remind the shopper of customer support options, include links to important policies and, once again, provide contact information should an issue arise. In addition, with permission, add him or her to the mailing list to distribute valueadded content to the shopper to build a longer-term relationship.

Wood recommends having a presence on social media networks such as Facebook, LinkedIn, YouTube, Twitter and other relevant sites where clients can access support and get helpdesk information. Allowing shoppers to interact with merchant's employees, partners and current patrons provides the transparency needed to relieve the anxiety associated from dealing with a new seller or an unrecognized brand. Know your audience and learn their limitations. Look at the shopping experience from the buyer's point of view. Do you have a product that requires heavy learning or includes complex instructions? If so, offer demonstration and product assembly videos. Combining quality products with good customer service and the right learning tools will help create happy, satisfied clients who are less likely to contest charges.