eCommerce Chargebacks - How to Prevent and Win at Scale
eCommerce Chargebacks: Read This Guide to Stop Fraud and Win Disputes With Ease
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TL;DR:
An eCommerce chargeback is when a cardholder disputes a particular transaction to their bank. And eCommerce chargebacks are now a $200 billion problem.
What is an eCommerce Chargeback?
An eCommerce chargeback is when a cardholder disputes a specific transaction to their bank, requesting payment reversal due to a transaction issue. When a cardholder files a chargeback, the bank or credit card issuer will reverse the transaction (after some due diligence to establish case merit) and deduct the funds from your merchant account. Stopping the bleeding means learning to prevent chargebacks at the source.
Why do eCommerce Chargebacks Happen?
eCommerce chargebacks happen for various reasons. It might be that someone used a stolen card to make a transaction, there are significant issues with order fulfillment or return processes, or customers couldn’t get the help they needed on time. Some eCommerce chargebacks result from merchant errors, such as double billing. Here are some stats on chargeback reasons:
- 30% - the number of chargebacks that result from transactions made with a stolen card.
- 26% - the number of chargebacks that result from undelivered orders.
- 15% - the number of chargebacks initiated by cardholders due to retailers shipping the wrong product.
- 8% - the number of chargebacks that result from orders significantly not as described.
What is the Actual Cost of eCommerce Chargebacks?
Chargebacks weren’t designed to be the burden they are today. When a transaction issue arises, there should be a channel for the cardholder to seek remediation. Unfortunately, as the digital landscape evolved and eCommerce transactions required more parties, the rules of chargeback mediation didn’t develop in parallel. Today, chargeback has become a $200 billion problem for the entire eCommerce industry. Every $1 chargeback fraud costs the average eCommerce merchant at least $3.
Card transaction charges
eCommerce merchants are charged a specific percentage for every card transaction. If the cardholder charges back the transaction, the merchant does not get a refund on the card processing fee.
Chargeback fees
The merchant acquirer includes additional charges for their involvement in the chargeback mediation processes. The fee could be in the range of $15 to $100.
Excessive chargeback penalties
Banks and card networks pay keen attention to merchants’ chargeback rates to ensure they don’t cross established thresholds.
High cost of operation and brand damage
Chargebacks also cost online merchants time, human resources, and brand equity.
What is a Chargeback Ratio, and How do You Calculate it?
eCommerce chargeback ratio is an aggregate of your sales compared to the number of chargebacks you received in a given month multiplied by 100.
How can You Prevent eCommerce Chargebacks Effectively?
Chargebacks are unavoidable but preventable. Here are some ideas on how to effectively prevent eCommerce chargebacks:
Have an Explicit Order Cancellation and Return Policy
Make Your Billing Statement Easy to Recognize
Stop Fraudulent Transactions with Authentications
Be Compliant with Payment Processing Rules
Ship on Time, Track Shipments, and Add Insurance Coverage
Match Your Prevention Stack to Your Platform
Automate Your Chargeback
Conclusion
eCommerce chargebacks are a growing business challenge for all online retailers. The tips shared in this article are proven dispute prevention guides that can save you a lot of money and time. Merchants using Chargeflow's chargeback automation have reported tremendous benefits beyond the superior win rates.