Chargebacks Explained: How to Reduce and Respond to Them

A chargeback is when a cardholder disputes a payment and asks their bank to reverse the transaction. If successful, the money is taken from your merchant account and returned to the customer.

Chargebacks were originally introduced to protect consumers from fraud — but they’re increasingly used in non-fraud situations too.

Chargebacks can happen for several reasons, including:

• ❌ The customer doesn’t recognise the transaction on their statement

• 📦 The product was not received or delivered late

• 📉 The product or service was not as described

• 💬 The customer tried to get a refund but was ignored

• 🔐 The cardholder didn’t authorise the transaction (e.g. fraud)

• 🔁 Duplicate billing or incorrect amounts were charged

• ⚠️ Subscription or recurring payments were not clearly explained

• You’ll receive a chargeback notification from your provider or acquirer

• The disputed amount is withdrawn from your merchant account

• You’ll be charged a chargeback fee (typically £15–£25)

• You have the option to respond with evidence to challenge the claim

• If you lose the case, the funds are permanently returned to the cardholder

• Too many chargebacks can put your merchant account at risk

Preventing chargebacks starts with clear communication and good processes. Here’s how to reduce your risk:

• ✅ Use a clear billing descriptor so customers recognise your business name

• ✅ Provide detailed receipts or confirmation emails

• ✅ Use signed delivery or proof of service where possible

• ✅ Respond quickly to refund requests or complaints

• ✅ Clearly explain your refund and cancellation policy

• ✅ Ensure your checkout process uses 3D Secure for online payments

• ✅ Keep your product/service descriptions accurate

• ✅ Avoid processing cards manually unless absolutely necessary

• ✅ Monitor for repeat or suspicious orders (especially online)

• ✅ Train staff on how to spot and handle risky transactions

• The funds will be permanently reversed

• You will lose the product/service and the money

• Your chargeback rate will increase (typically measured as % of total transactions)

• High chargeback ratios may result in:

  • Increased fees

  • Rolling reserves being applied

  • Termination of your merchant account

🧠 Tip: Try to stay below 1% chargeback rate (1 per 100 transactions) to avoid being flagged.