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How to minimize chargeback fraud losses

Every business tries to optimize its profitability by maxing out the revenues and minimizing the expenses. Some expenses (like logistics, product storage, or service development costs) can be managed internally. 

Unfortunately, there are lots of external expenses like chargebacks, which a business cannot control. While there will always be legitimate chargebacks, you can greatly reduce the number of fraudulent ones. This article will provide five practical pieces of advice on how to minimize chargeback fraud losses.

Come to terms with chargebacks

No matter how great your products or services and how polished your delivery and customer support are — there will always be chargebacks. There can be a thousand legitimate reasons why a customer might want their money back. Thus said, chargeback management should be a cornerstone of your long-term risk management strategy.

Is your company a high-risk or a low-risk merchant? Should you have more than a 1% chargeback ratio and more than 100 chargebacks monthly, you become a high-risk one. You then have to pay extended payment processing fees and many banks/payment processors refuse to handle your transactions. 

After exceeding 1.5% (in some cases up to 3%, depending on your industry and other factors) chargeback ratio thresholds, your merchant account can be blacklisted by Visa and Mastercard. This will impose heavy fees and require lots of effort to rectify the situation — but you are on the way to bankruptcy otherwise.

Thus said, you might try to split your operation between several merchant accounts in order not to put all eggs into a single basket. But it would definitely impose more managerial overhead and will not solve the root cause of the problem. To come to terms with chargeback management you need to minimize the reasons for legitimate chargebacks and fight the fraudulent ones using specialized tools.

Integrate purpose-built chargeback mitigation tools in your operations

Card-not-present frauds are not the only ones leading to chargebacks. Many marketing, affiliate, product and other types of fraud can lead to chargebacks, so you should carefully examine your products/services and be ready to mitigate various risks that stem from their usage. This is best done using specialized risk management and chargeback mitigation tools.

There are lots of such platforms on the market and each of them helps to address one or several concerns. The best decision, however, would be to choose a platform that can cover the whole range of risk mitigation needs. Below are the features such a tool has to provide:

  1. Access to global reputation databases and watchlists with compromised email addresses, phone numbers and other identifiers of fraudulent activities

  2. Device fingerprinting to be able to collect such identifiers from new customers

  3. Behavioral analysis for KYC purposes

  4. Product analysis tools for identifying potential fraud cases

  5. Static and dynamic rules for changing limits on transaction number and size, geolocation, email, IP address and other parameters to enable precise risk scoring.

Customer support and working with feedback

A satisfied customer will just use your product or service. A frustrated one will go for any lengths of time and effort to spread the negative feedback as far and wide as they can. You should pay utmost attention to ensure your customer support does its best to resolve all issues before the customers decide to tarnish your reputation.

Should negative reviews appear after all, you should respond to them personally, with due respect, and provide data showcasing the reason for the situation and the effort you invested to rectify it. This way, negative reviews become an invaluable source for business process improvement and actually showing your brand from the positive side. 

Use spcialized tools to crawl the web looking for any mentions of your brand or services, so you can respond to every feedback in a timely and efficient manner.

Your website content is crucial for chargeback prevention

If anything can be misunderstood — it will be. Ensure the product/service descriptions on your website pages leave no room for misconceptions. Put all applicable prices (product/service costs, delivery expenses, any fees that apply) on the same page, so the customers cannot say they agreed to pay $50 and you charged them $65.

Ensure your customers accept your Terms of Service before they can make any transactions and have clearly stated refund and chargeback resolution policies in place there. This way you have a watertight proof base for chargeback dispute resolution when the time comes.

One of the most frequent chargeback reason cases is the statement the product was not delivered or was delivered not on time or in a broken condition. Demand handwritten signatures of receipt on the final logistics stage, so the customers have to check the product upon delivery and cannot later state that it was not operational or went astray.

3D secure 2.0 is your best friend

While most of you have definitely heard about this technology, a surprisingly low number of merchants actually deploy it. 3D secure is a method of customer authentication, so they have to provide their card details and a one-time password when making a purchase. This effectively prevents the use of stolen cards, as the customer has to have access to the phone on record with the card.

While it adds another step into the sales funnel, 3D secure is a great way to fend off the fraudsters while showing legitimate customers you care about their security, convenience and user experience. Most importantly, merchants operating across the EU have to use 3D secure 2.0 by default since the PSD2 implementation.


We listed five main ways to minimize chargeback losses for any online merchant. Which of them to use is up to you, but the best results can be achieved by using them all. While this might seem quite an investment of time and resources, keep in mind that paying extra fees or even being blacklisted by Visa and MasterCard is the alternative. From this perspective, paying around $10,000 to save $300,000+ in potential losses is a wise choice.




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Aleksandr Khelemskiy

Aleksandr Khelemskiy

Product owner

Member since

24 Jun 2021



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