Online retailers should provide legitimate customers with ways to communicate complaints before they become chargebacks. And they should have a procedure in place for when chargebacks inevitably occur.

Josh Kaston, president, Clearwater Processing

Josh Kaston, president, Clearwater Processing

Any merchant who accepts credit cards will almost certainly deal with chargebacks at some point during the lifespan of their business. The unavoidable thorn in a merchant’s side, chargebacks span more than 65 different reason codes and in some industries, account for nearly 10% in lost revenue. Minimizing chargebacks will not only save a merchant money, but also time and headaches.

A business that accepts credit cards must be prepared to battle chargebacks. Unfortunately, chargebacks tend to be more prevalent in e-commerce settings. It is estimated that the e-commerce industry faced a nearly $7 billion loss from chargebacks alone in 2016. There are several factors contributing to this number, but perhaps most critical is the fact that the transaction occurs in the digital landscape.

Limiting chargebacks is not only vital to the financial health of a business, it is essential to maintaining relationships with the major credit card companies. The general rule of thumb is that a business should not exceed a one percent chargeback rate, and no more than 100 chargeback transactions per month.

The more a merchant interacts with a customer, the less likely the customer will have reason to file a chargeback dispute.

Mitigating chargebacks depends on several elements, including the size of the business and the industry. For example, merchants selling subscriptions, adult products and custom ordered goods are typically considered higher-risk for chargebacks.
The best offense against chargebacks is a strong defense. With a bit of preparation and consideration, e-commerce merchants can contain the leakage of revenue that chargebacks cause. Here are five suggestions:


Adhere to PCI compliant practices.

All merchants accepting credit cards as payment must be PCI compliant. This essentially means that a business’ security operations adhere to a certain standard to protect the information of customers. For e-commerce sites, this is particularly important as web-based transactions tend to be more susceptible to fraud.

Maintaining PCI compliance gives merchants better protection against fraudulent chargebacks as well as internal fraud amongst the merchant’s employees.

Facilitate points of customer interaction throughout the transaction process.

Customer interaction has always been a critical element of brick-and-mortar loss prevention strategies. Internet retailers, with a lack of face-to-face interaction, cannot leverage this strategy outright. Instead, they must intentionally create customer interactions throughout the transaction process.


Increasing engagement provides a better customer experience and provides a helpful trail in the event of a filed chargeback claim. The more a merchant interacts with a customer, the less likely the customer will have reason to file a chargeback dispute. Internet retailers can implement such engagement in several ways: include an order approval page, automatically follow up post-order, or ask for feedback. These can be incredibly helpful to reduce the number, and validity, of chargeback claims.

Have policies in place to manage chargebacks.

Half of the battle with chargebacks is defending the charge. In this instance, being proactive, rather than reactive, has its advantages. By creating policies for managing chargeback disputes, the process will become much more fluid and less time-demanding.

These policies should address both internal procedures and customer relations. Internally, staff should be trained on where and how to respond to disputes. A list of documents to gather in response to a disputed transaction is also helpful. Externally, customers should be directed to a phone number or email address in regards to any transaction issues. Policies on dealing with returns or exchanges should also be prominently listed on a merchant’s website so customers can go directly to the source rather than to the credit card company.

Merchants should also expect a proactive response from their credit card processor. In some instances, merchant service providers offer multiple ways to respond to chargebacks, provide interaction with the parties that dispute the chargebacks and will offer to help formulate the response a merchant must provide to the chargeback department.


Make sure the billing and shipping addresses are the same.

Not every customer will ship to the same address as their billing address, but a discrepancy between the two can be a quick identifier for fraud, and the potential for a future chargeback dispute.

While this is not a foolproof, one-size-fits-all defense, it is definitely helpful. Sites that build in extra fraud protection for transactions using two different addresses will see a reduction in chargeback disputes. This could be the single biggest red flag for e-commerce merchants in their fight against chargebacks.

Mitigate the risk.

Services exist for e-commerce merchants that will subject the card-issuing bank to the authorization of a credit card instead of the credit card processor. This will put the onus of the chargeback back on the card-issuing bank as opposed to the merchant, for many chargeback reason codes. While the service is expensive, and only certain merchant processors know how to facilitate this, it might be a viable option for bustling e-commerce businesses as a way do decrease costly chargeback disputes.


Credit card processor Clearwater Processing is division of Clearwater Merchant Corp.