Top 3 Reasons Online Merchants Receive Chargebacks

top main reasons for chargebacks

Last Updated on February 15, 2024 by Saira Farman

As a merchant, making a profit and expanding your business are your main goals. You have to find ways to stay ahead from the competition since doing business is highly challenging.

All these are good signs that will make your business stay afloat and reap rewards. You are most probably happy with the ROI until you receive chargeback alerts.

Chargebacks are intended to protect consumers and business owners from fraud and other unauthorized activities especially for online transactions. Chargebacks are normal but reaching a certain percentage can hurt your business in the long run.

Even if Chargebacks are expected in virtual and online shopping, these can be reduced with the use of refined business practices and strategies.

But what are the top main reasons for chargebacks?


This happens with the customer did not authorize the online transaction. Or when the cardholder lets a family member use the card but fails to recognize the charges.

There are different types of fraud: merchant fraud, 3rd party fraud, and friendly fraud. Merchant fraud refers to the scenario where the merchant fails to ship the product after the payment has been accepted. Or if the merchant fails to satisfy the customer by sending knock off products that are advertised as authentic.

On the other hand, 3rd party fraud is when someone uses the cardholder’s information to purchase products or services online. A fraudster using the cardholder’s card details for wireless transfer also falls under 3rd party fraud.

Friendly fraud is when the cardholder fails to recognize a valid transaction due to late posting, unidentifiable descriptor, or letting family members use the card.


Merchants who fail to communicate clearly with their customers are likely to experience high chargebacks.

As a merchant, it is vital to have excellent customer service that will efficiently and quickly cater to customers’ queries. It is not necessary to have 24/7 customer support, but customers must have clear lines of communication. This will give them the assurance that you are open to hear their comments and feedback.

In addition, you must treat each query with urgency and have this addressed within the next 24hours. Failure to have clear and responsive communication will prompt customers to file for chargebacks.


Merchants must clearly state their cancellation and return policy on their merchant website. A concise return and cancellation policy gives customers the assurance of security.

Regardless of your business type and size, a well-thought policy will ensure customers that they are dealing with a legit business. Since online shopping limits the customers from having a real glimpse of the product before they buy it, policies serve as a guarantee of product quality.

Time limits must be clearly posted on your business homepage, FAQ, and before check out. This will not only limit chargebacks but also increase sales because you are practicing fair business conduct.

Many businesses that have a lot of returns will be considered high risk and be forced to open a high risk merchant account in order to even work with a bank.

Chargebacks may be a burden but these can be prevented. Have a professionally set-up merchant account online, get an excellent customer service team, and send an automated text message after the purchase to ward off chargebacks.

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