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Identifying and Addressing Common Causes of Chargebacks

Disputed chargebacks cost businesses revenue and can cause damage to a merchant’s reputation. Understanding the causes of illegitimate chargeback disputes is essential to fight them effectively.

While fraud is one of the most common causes of chargebacks, friendly fraud (also known as friendly fraud or consumer remorse) is another major issue.

Defective Goods or Services

A chargeback is a transaction reversal where funds are pulled from a business’s account and returned to the card-issuing bank. People file these disputes for a variety of reasons. Some are more sinister (like friendly fraud), while others are based on more innocent issues, like the product they bought never arrived or was damaged.

Regardless of the cause, the bottom line is that these disputes cost businesses money. A single chargeback can cost retailers more than the amount of the disputed purchase itself.

To combat these losses, merchants need to have a chargeback recovery strategy in place. This includes a represented process, where the merchant tries to convince the issuer bank that a dispute is illegitimate. Using a chargeback representation service that provides checklists, direct lines of contact to issuer banks, resolution letter templates, and surveillance can help reduce the frequency of these costly disputes. This, in turn, can save businesses percentage points of their profits.

Customer Service Issues

Aside from fraud, many chargebacks are caused by customer service issues. Often customers are unhappy with the product or service they received and seek to get their money back by filing a dispute with their bank. For example, a customer may claim they have not received their package or was damaged during shipping and handling. In such cases, merchants need to offer easy returns and shipping policies.

Another common reason for disputes is friendly fraud, where authorized cardholders dispute seemingly legitimate purchases to get a refund. This is also known as chargeback abuse and can be prevented by providing detailed, thorough documentation and implementing a robust fraud prevention program.

Analyzing your business’s chargeback data and identifying patterns is the best way to determine how to minimize its incidence in the future. Companies seeking a risk-free, hands-off solution for managing chargebacks can use chargeback representing services.

Errors with the Payment Processing System

Although fraud is the most common cause of chargebacks, merchant error is also a significant factor. Due to miscommunication between the merchant and the customer, an unclear refund policy, or a failure to get back to a dissatisfied buyer in a reasonable amount of time, illegitimate disputes can be costly to merchants.

These seemingly minor merchant errors can trigger a dispute and result in loss of revenue, expensive acquiring bank fees, and a higher chargeback ratio. Aside from the high costs of processing error chargebacks, the time-consuming and tedious process of fighting them can drain a business’s resources and lead to lower performance metrics overall.

Fortunately, there are ways to reduce these occurrences. One of the best is to invest in a chargeback management solution that provides merchants with all the tools they need to combat fraudulent and non-fraud-related chargebacks, such as checklists, direct lines of communication with issuer banks, resolution letter templates, and surveillance.


Ultimately, chargebacks result from consumer and merchant behaviors that are not necessarily black or white. Gray areas lie between criminal fraud, merchant error, and cardholder abuse. Unfortunately, these grey areas are often overlooked and abused by customers looking to take advantage of the process.

One example is friendly credit card fraud, where a customer disputes a valid purchase for unwarranted reasons. For instance, an online store might get a chargeback because they don’t have an easy return policy or because the product description on their website is misleading.

The good news is that some services promise to reduce your dispute rate and help you fight meritless chargebacks. These services can provide tools such as checklists, direct lines of communication with issuer banks, resolution letter templates, and surveys to help you build the most robust case possible to win disputed charges. They also offer fraud protection to avoid the cost of illegitimate charges altogether.

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