PaylobbyGuidesFraud management › How can merchants protect themselves from chargebacks?

How can merchants protect themselves from chargebacks?

Meaning of chargeback

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: is there a time limit on credit card chargebacks?

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 immediately or within a few days, 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.

Chargeback debit card

Debit card holders pose the lowest chargeback risk, especially in card-present transactions. The process is more complicated than with credit cards, and banks can take up to 10 days to review the claim before issuing refunds. Therefore, it is often easier and quicker for customers to request a refund directly from the merchant. The merchant then has the opportunity to rectify the situation in a way that benefits both parties, e.g. issuing the consumer a refund and preventing a spike in the chargeback-to-transaction ratio.

PayPal chargeback

PayPal users using the e-wallet with a linked credit card might also file a chargeback. In this case, PayPal will contact the merchant directly, which can then decide whether to dispute the claim or not. Typically, the dispute process takes 30 days by PayPal, and the card company may take up to 75 days to resolve a chargeback and come to a final decision.

When a buyer files a chargeback, PayPal charges a fee to the seller. For transactions protected by Seller Protection Policy, PayPal will cover the amount of the chargeback and waive the chargeback fee.

How much does chargebacks cost?

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.

How to identify suspicious transactions?

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 history 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 credit card 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 suspicious, 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.

How to deal with chargebacks disputes?

Chargebacks are initiated by the buyer's credit card issuer. Therefore, the  process varies and follows the issuer’s policies. In general, the process follows the following timeline: the buyer files a chargeback within 120 days or more after an order has been placed and the merchant has 10 days to answer the claim. Usually, chargebacks are resolved in a few weeks, but they can take 75 days or more in some instances.

Chargeback process

The chargeback process is not a straightforward process, which is why merchants often express their frustration towards it.

  1. The buyer requests a chargeback from their credit card company.
  2. The issuer reviews the request. If the chargeback claim is deemed valid, the transaction is sent back to the acquirer. At this point, the customer is reimbursed.
  3. The acquirer receives the chargeback and then resolves it or forwards it to the merchant.
  4. The merchant accepts the chargeback or submits a response to the acquirer. The response will typically include some of the following information: date/time stamp, device, shipping verification, CVV match, device fingerprinting, geolocation, past transaction history, subsequent transactions from customer, email communication & interactions, phone call transcripts, live chat transcripts and social media interactions & shares.
  5. If a response was submitted, the acquirer will review it. If they side with the merchant, the transaction will be forwarded to the issuer.
  6. The issuer informs the cardholder of the outcome.

How to fight a chargeback

Fighting chargebacks begins in everyday operations. Merchants should maintain accurate transactions records. This preemptive measure will ensure that the information needed to compile compelling evidence is available, should a chargeback occur. Furthermore, the documentation should be well organised, as merchant must respond quickly to chargebacks.

What to do, once you receive a chargeback claim? First, the merchant should look for the reason code. Each chargeback is accompanied by a chargeback reason code, which helps the merchant understand why the chargeback was filed. Then, a rebuttal letter must be written to accompany the chargeback dispute.

If you've taken the necessary steps to eliminate merchant error and minimise criminal fraud, then you can dispute friendly fraud chargebacks with confidence.


  • I accept the terms and condition and privacy policy

Fraud in mobile payment

The mobile channel is the newest victim of fraudster. Learn more about the fraud in mobile payment.


Warning: SessionHandler::write(): write failed: No space left on device (28) in /var/www/004-pay-lobby/vendor/symfony/symfony/src/Symfony/Component/HttpFoundation/Session/Storage/Proxy/SessionHandlerProxy.php on line 77