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How can merchants protect themselves from chargebacks?

Chargebacks are intended as a customer protection measure. The customer (credit card holder) may have the amount reposted by his bank if the transaction is faulty or has been made by third parties.

Online merchants must be prepared for sudden chargebacks, even if those often raise questions. In addition to legitimate chargebacks, there are also chargebacks that were made with fraudulent intent.

The chargeback process: how long is a chargeback possible?

The chargeback process will commence after the cardholder has submitted a complaint to the credit card issuing bank within the time limit. A chargeback is still possible up to four months after debiting. The customer gets the value credited back - without additional costs. The bank then contacts the dealer and investigates the case. The trader now has to prove the legality of the transaction. If he cannot do so, the costs of the product will be collected by the dealer. In addition, a chargeback fee arises due to the increased processing costs.

Cost of chargebacks for the dealer

For a dealer chargebacks are not an easy task, since he will be charged the cancellation of the invoice amount and the additional fees associated. In addition, with each payment cancellation the chargeback quota of the dealer deteriorates. In the worst case, this leads to the withdrawal of the MID by the acquirer bank when a certain limit is exceeded. On average, chargeback odds of 1% are considered just acceptable.

What is the merchant identification number?

The merchant identification number (MID) can be used to credit a payment by credit card to the relevant merchant who accepted the payment. The MID is transferred from the acquirer to the dealer. Mostly it is a MID that is valid for Visa or Mastercard or in combination. For example, if a customer makes a payment with a Visa card, the MID can identify the company's credit card acceptance contract.

When do payment transactions count as suspicious?

Traders have different approaches to identifying criminal transactions. This includes checking addresses and contact information, as well as analyzing patterns that are common in fraud cases. We have summarized some possibilities of suspected cases for you.

Verification of the address and contact details

It is important to check the specified address and the associated IP address. Thus it can be determined whether the customer possibly indicated a local address, although the IP is abroad. Conspicuous are also transactions in which the address is given as a packing station or in the case of transactions in countries to which the dealer does not specialize. If multiple customers use the same delivery address, this can also be a sign that something is wrong with the transaction. Some dealers use a telephone number provided by the customer in question cases to determine if the customer is available or if the number actually exists.

Check the Visa or MasterCard credit card for chargebacks

The credit card can be used to identify other suspicious transactions. If the name on the credit card does not match that of the customer, this may be an indication. Another clue may be the comparison of the customer's domicile with the origin of the credit card. For example, if the customer is resident in the Netherlands and the credit card comes from Spain, you should look into the transaction in detail. In addition, empirical values can be included. Have there been similar transactions that have been reported as fraud? Or are there orders that exceed the average cart a lot.

How can online retailers reduce their chargebacks?

Transparency is the keyword, so that customers always know when and where the goods are coming from. This affects the shop itself with a clear indication of delivery times. This affects even more the situation when delivery problems occur. Any kind of performance disruption that is foreseeable should be reported to the buyer directly. Shop operators often use hotlines or e-mail functions to offer the possibility of communication in the event of service disruptions. In general, the online retailer should document his proof of delivery in writing, as the parcel services usually store this only up to 6 months. If legal action is needed in a chargeback case, proof of delivery is essential.

Targeted handling of refunds

If transactions appear dubious at first glance, the dealer should consider keeping the ordered goods with him for the time being. A loss of control can thus be prevented. At the same time, a proactive chargeback on the card should be considered. If it then comes to a chargeback, the dealer is easier to cancel this and saves the chargeback fee.

What is the difference between a chargeback and a refund?

A chargeback is initiated by the cardholder and may lead to a refund. The bank must examine whether such an application is appropriate. A refund, on the other hand, is a merchant-initiated payment transaction that relates to a specific card transaction and allows the refund of all or part of the transaction amount.


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