When a cardholder disputes a transaction with their bank, they can file a chargeback.
Chargebacks can affect your business in the following ways:
- Lost revenue and fees - When you receive a chargeback, we automatically deduct the transaction amount and a $25 non-refundable administrative fee from your account.
- Penalties and account closure - Every chargeback, including those that you successfully defend, counts toward your chargeback ratio, which is the percentage of your transactions that result in chargebacks. A high chargeback ratio can lead to penalties and, in some serious cases, account closure.
To avoid chargebacks, follow the best practices based on the type of payment you accept:
- Online payments - You accept payments online, and customers can complete purchases without being physically present.
- In-person payments - You accept payments in person, and customers are present at the time of the purchase.
- Recurring payments - You charge customers automatically on a regular schedule, for example, subscriptions and memberships.
Online payments
If you accept payments online, follow the best practices at each stage of the payment process to help avoid chargebacks:
Before a sale
- Enable address verification service (AVS) and card verification value (CVV) verification - Add security checks that verify whether the billing address and card security code a customer enters match their bank's records.
- Enable 3-D Secure (3DS) - Add an authentication step where the cardholder confirms the transaction directly with their bank using a password, one-time passcode, or biometric verification. If a customer disputes a transaction, liability for fraud often shifts to their bank, which reduces your chargebacks.
- Use a billing descriptor that matches your business name - Set your billing descriptor to match your business name and include your website URL or business contact number to help customers recognize the transaction on their bank statement.
- Flag orders with different shipping and billing addresses - Review orders manually when the shipping address differs from the billing address, especially when combined with other risk indicators, such as unusually large orders or multiple failed payment attempts.
- Add a rate limit on payment attempts - Restrict the number of payment attempts a device or IP address can make within a set period of time. With a rate limit, no one can repeatedly run stolen card numbers through your checkout, which helps stop fraud attempts.
- Enroll in chargeback alert services - Sign up for chargeback alert networks from card brands, for example, Visa's Verifi Cardholder Dispute Resolution Network (CDRN) and Mastercard's Ethoca Alerts, to receive notifications when a cardholder disputes a transaction. You then have a short window to resolve the dispute before it becomes a chargeback.
During checkout
- Display the full price before the final payment step - Show the total cost, including shipping, taxes, and any fees, on the checkout page before customers confirm payment.
- Display your refund, return, and cancellation policies - Show your refund, return, and cancellation terms near the buy button on the product page and on the checkout page before customers confirm payment.
After a sale
- Send a receipt with an item breakdown - Send a receipt after each sale that includes a breakdown of items, prices, and fees.
- Send order and shipping updates - Send customers a confirmation email when they place an order, a shipping notification with tracking when the order ships, and a delivery confirmation when the order arrives. If a delay occurs, notify customers right away. For international shipments, warn customers about potential customs delays at checkout or in the order confirmation.
- Make it easy for customers to reach you - Offer at least two ways for customers to contact you, for example, through email and live chat, and display your contact information on your website, receipts, and confirmation emails. Customers who can't find a way to reach you will contact their bank instead.
- Require a signature on delivery for high-value transactions - For high-value transactions, use a delivery service that requires the customer to sign for the package on delivery.
- Process refunds promptly - Process refunds as quickly as possible after you confirm a return or cancellation. Customers might dispute the charge if the refund takes too long to arrive.
In-person payments
If you accept payments in person, follow the best practices at each stage of the payment process to help avoid chargebacks:
Before a sale
- Accept Europay, Mastercard, and Visa (EMV) chip and contactless payments - Allow customers to insert or tap their card instead of swiping to reduce fraud risk and potential chargeback liability.
- Use Personal Identification Number (PIN) verification instead of a signature - Configure your terminal to ask for a PIN instead of a signature whenever a customer uses a chip card. A PIN is more secure than a signature, which reduces the risk of fraudulent transactions.
- Use a billing descriptor that matches your business name - Set your billing descriptor to match your business name and include your business's contact number to help customers recognize the transaction on their bank statement.
- Train staff to recognize suspicious behavior - Train your staff to identify warning signs of potential fraud, such as multiple declined cards and unusual purchasing patterns. Catching suspicious behavior early reduces the chance of a fraudulent transaction going through.
During checkout
- Display your refund, return, and cancellation policies - Show your refund, return, and cancellation terms at the point of sale where customers can see them before they pay.
- Provide a receipt with an item breakdown - Give customers a receipt at the time of purchase that includes a breakdown of items, prices, and fees.
After a sale
- Make it easy for customers to reach you - Offer at least two ways for customers to contact you, for example, by phone or email, and display your contact information on your receipts and at the point of sale. Customers who can't find a way to reach you will contact their bank instead.
- Process refunds promptly - Process refunds as quickly as possible after you accept a return. Customers might dispute the charge if the refund takes too long to arrive.
Recurring payments
If you offer subscriptions and payment plans, use the following best practices:
- Display your billing terms - Show the subscription cost, billing frequency, and cancellation process before the customer signs up for a subscription so they know exactly what to expect.
- Provide a copy of the billing agreement when a customer subscribes - Send customers a copy of their billing agreement immediately after they sign up for a subscription.
- Send a reminder before a free trial converts to a paid subscription - Send customers a reminder before a free trial ends so they have time to cancel if they don't want to continue.
- Send a reminder before you charge an annual renewal - Send customers a reminder before you charge an annual renewal so they have time to cancel if they don't want to continue.
- Make it easy for customers to cancel a subscription - Provide a clear and direct way for customers to cancel their subscription, for example, offer a self-service option in their account settings rather than requiring them to call or send an email. After you process the cancellation, send the customer a cancellation confirmation.