Merchant Chargeback Prevention Guide

Merchant Chargeback Prevention By Justt Staff

Chargebacks are a pain for merchants since they deprive them of deserved revenue, damage customer relationships, and affect payment processing. While you can fight chargebacks and win, prevention is a better cure.

Let’s take a deep dive into chargeback prevention using tools and strategies that’ll help reduce your chargeback rate.

Why is chargeback prevention important, Justt ai

Why is chargeback prevention important?

Merchants shy away from discussing chargebacks. Mainly because dispute processes can be complex, and disputes make up a small percentage of overall sales, making them easy to write off as the cost of doing business. 

However, this is a gross underestimation of chargebacks’ effect on the bottom line. Aside from the cost of lost merchandise and lost revenue, the true cost of chargebacks includes:

  • Administrative fees
  • Chargeback fees
  • Overhead costs including customer acquisition costs, shipping, and fulfillment costs

Causes of chargebacks

Card networks allow cardholders to file disputes for various reasons identified by chargeback reason codes that don’t paint the full picture. Generally, chargebacks can be traced to three main causes:

  • Criminal/true fraud – is unauthorized purchases usually made with breached or stolen credit card information.  
  • Merchant error – procedural and policy missteps like unclear policies and processing shortcuts within the business can lead to a chargeback. 
  • Friendly fraud – some cardholders make a legitimate purchase only to dispute the transaction directly with the issuing bank, abusing the chargeback process.

Chargeback prevention strategies

Chargeback prevention strategies - Justt.ai

Improve customer service

Excellent customer service is a good defense against friendly fraud. To avoid chargebacks, customer service representatives should be available and responsive before, during, and after purchase.

Make it easier for cardholders to deal with your customer service than the issuing bank. Display contact information prominently on your website, packaging, receipts and order blanks.

Better order communication

Regardless of the complications during order fulfillment, merchants should update customers. Without communication, shoppers get angry, assume the worst, and contact their banks.

The more you update your customer from checkout to delivery, the more their confidence in your business grows. You can include the tentative shipping and delivery date and provide email tracking numbers for the orders.

Eliminate merchant error

The number of chargebacks caused by procedural and minor errors is shocking. The errors include failure to get authorization and submitting incorrect data, and they can be prevented by evaluating the buying process and fixing chargeback triggers.

Authentic marketing

Product and service descriptions should be accurate to avoid chargebacks from “items not as described.” Be detailed in your descriptions and avoid vague phrases that misrepresent the item. Including focused pictures from different angles and specifying the color, brand, and size helps avoid surprises after delivery.

Manage subscriptions

A subscription business is beneficial to customers and merchants but comes with some chargeback risks. Once a customer shifts from a one-time purchase to a subscriber, their expectations change. Ready yourself to initiate communications and be fast to respond to inquiries.

Subscription business models also require operational transparency. Your terms of service should be easy to understand and readily available even before the initial order.

Aside from this, subscription cancellations should be pain-free and simple. If subscribers feel you trapped them in a service they don’t need, they’ll file a dispute.

Use available chargeback prevention tools

Use available chargeback prevention tools

With a myriad of chargeback triggers, no single chargeback prevention tool is sufficient. Combining many tools in your prevention strategy creates layers of protection for your business. These prevention tools are classified into:

Pre-transaction chargeback prevention tools

  • Address Verification Service (AVS)

AVS is a tool designed to compare the cardholder’s billing address available on file and what’s provided on the transaction. An address mismatch could mean it’s an unauthorized purchase.

  • Card security codes

Every payment card has a card security code. Since merchants or processors don’t store them, the cardholder should re-enter the digits on every checkout, which is relayed to the card issuer for verification. A mismatch in the security code might mean the shopper doesn’t physically possess the card.

  • 3-D Secure 2.0 

During transactions, merchants send details like device name and IP address to the issuing banks for verification. Through 3-D Secure, the issuing bank compares the details with what they have on file in real-time. Based on the verification results, the transaction is labeled low-risk, and the merchant can proceed or high risk, which requires extra verification steps like providing the one-time password.

  • Blacklist

A blacklist is a database of past shoppers who’ve filed a dispute or charged back. The database is created post-transaction but ensures the shopper causes trouble only once. 

You can integrate the blacklist with your CRM to flag orders by shoppers on the list and either cancel the order automatically or manually review it.

  • Visa Account Updater (VAU)

VAU is a payment card information clearinghouse that helps merchants prevent chargebacks linked to incorrect card data.

  • Velocity Limits/Checks

Velocity limits determine suspicious activities, like card testing, based on the speed of multiple transactions within a specific time.

Post transaction chargeback prevention tools, Chargeback alerts

Post transaction chargeback prevention tools

These tools protect merchants against disputes and help keep chargebacks under control.

Chargeback alerts

These systems notify merchants of a dispute allowing them ample time to refund a cardholder before it escalates to a chargeback. The main chargeback alert systems include:

  • Verifi CDRN (Visa)
  • Ethoca Alerts (Mastercard)

 

Network Enquiries

Network enquiry tools also work by intercepting disputes filed. They allow issuing banks to get extra information on transactions before charging back a merchant. These systems help merchants resolve friendly fraud disputes before they are filed. They include:

  • Verifi Order Insight 
  • Ethoca Consumer Clarity

Leave It to the Chargeback Experts

Even with these tools, chargeback prevention is a complicated and time-consuming process. You need a professional chargeback prevention company to create an effective  strategy for preventing and mitigating chargebacks. As an end-to-end chargeback management solution, Justt helps you do just that. From using chargeback intelligence to reduce the volume of chargebacks to winning back lost revenue from the chargebacks that do come through the system, Justt helps you tackle the problem in a holistic manner.

To learn more about Justt contact us.

Merchant Chargeback Prevention FAQs

How do you protect merchants from chargebacks?

The methods used depend on the type of chargebacks they receive. But generally, these methods work:

  • Improving order communication and customer support
  • Using fraud prevention tools like AVS, 3D secure and card security codes
  • Eliminating minor procedural errors  
  • Having accurate merchandise descriptions
What is chargeback protection?

Chargeback protection is a service where liability for unauthorized transactions and fraudulent disputes are moved from the merchants to the chargeback protection provider. Many fraud prevention companies and payment processors provide chargeback protection. Learn more.

Can merchants fight chargebacks?

Yes, merchants can fight chargebacks they feel are illegitimate to avoid losing sales revenue. However, it’s better to prevent chargebacks before they occur.

What happens when a merchant wins a chargeback?

When a merchant fights a chargeback and wins, the disputed transaction amount is credited back into their account. 

Can a merchant take back a refund?

Unlike chargebacks, merchants initiate refunds. As a result, merchants cannot dispute or reverse refunds. 

How do chargeback prevention tools work?

Chargeback prevention tools target specific threat sources like buyer remorse, policy missteps, and unauthorized card use. But since there are many potential chargeback triggers, prevention strategies revolve around several tools.

How often do merchants win chargeback disputes?

According to a report by JPMorgan, the average chargeback win rate for merchants is 27 percent. This calculation is based on all chargeback categories.

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    Chargebacks per month


    • Under $5,000
    • Under $50,000
    • Under $100,000
    • Over $100,000
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