Beyond Buyer Protection: The Quiet Threat of Chargeback Abuse in E-Commerce

Exactly.com’s Payment Expert, Madara Antanaviča, explains how chargebacks – originally designed to protect consumers – are quietly costing merchants more than they realise, and shares strategies to reduce risk and regain control.

They’re sometimes brushed off as misunderstandings, but there’s nothing harmless about chargeback fraud.

E-commerce businesses are quietly losing revenue through chargebacks – some legitimate, many not. Although refunds are an expected part of e-commerce, chargebacks are something else entirely: they come with steeper costs, fewer controls, and longer-term reputational damage.

And as social media continues to amplify consumer “life hacks” for bypassing return policies or disputing payments, merchants are increasingly vulnerable to what’s become a hidden but serious threat.

Chargebacks Vs Refunds: What All New Businesses Should Know

For merchants, the difference between a refund and a chargeback isn’t just procedural; it’s financial, reputational, and operational.

The idea of a refund is simple: the customer asks for their money back and the merchant decides how to respond. Aside from obvious consumer rights implications, the business owner maintains control of the dialogue.

A chargeback, however, is handled via a completely different process. The customer raises a dispute with their card issuer, who may issue a temporary credit and initiate a formal review. Examples include so-called “friendly fraud”, such as when a child uses a parent’s device to make a payment without permission, as well as genuine cases of undelivered goods or entirely fraudulent claims.

Once this process is initiated, the merchant is notified and given the opportunity to respond with evidence. If the result of a mutual review favours the customer, the funds are removed from the merchant’s account, and a non-negotiable fee applies.

Read More: Essential Financial Checks That Protect Retail Businesses

Why Does Any Of This Matter?

Firstly, chargebacks are expensive for merchants. They typically cost £15-£40 per case, but can sometimes be even higher – and that’s before taking into account lost revenue or fulfilment costs.

The second issue with chargebacks is that they quickly damage commercial trust. Card schemes like Visa and Mastercard have well-established chargeback rules, and if a business has a bad month, they can be easy to break.

Taking Mastercard as an example, the scheme actively monitors merchant performance based on two primary criteria: the absolute number of chargebacks received, and the chargeback rate. The latter must remain under a 1.5% threshold, which is calculated by dividing the number of chargebacks in the current month by the number of successful transactions processed in the previous month.

Visa enforces its own set of thresholds, and it’s also important to note that both traditional banks and fintech direct acquirers often apply their own risk parameters too. These may include more stringent criteria than those defined by the card schemes, in order to safeguard both their operations and their merchants. As a result, acceptable chargeback rates can vary depending on the acquirer.

Overall though, the takeaway for merchants is simple: even a modest increase in disputes can result in higher processing fees, stricter contract terms, or risk to the merchant account itself.

The Harsh Reality Of Chargeback Fraud

According to Visa and Chargebacks911, fraudulent claims may account for 45-75% of chargebacks. Sometimes it’s an unintentional error. But more often it’s a deliberate misuse of a valid consumer protection mechanism.

Here’s what it looks like:

• A customer doesn’t recognise the merchant name on their statement and disputes the charge.
• An order arrives late or without tracking, so they assume it’s missing.
• The returns policy feels too rigid or confusing, so they go to the bank instead.
• They signed up for a subscription, used the service, then claimed they didn’t consent or forgot to cancel.

Some consumers have learned that chargebacks are faster and more decisive than contacting support. And once they realise it works, they repeat the pattern.

This is especially painful for subscription-based businesses, where customers may use a service, then retroactively claim they never signed up.

How To Reduce The Likelihood Of Chargebacks

Merchants will never be able to eliminate chargebacks completely but they can take early action to make them rarer and easier to fight.

1. Make contact easier than via the bank

If customers can’t reach a business quickly or don’t understand its return process, they’ll default to raising a dispute. Prominent contact details, plain-language refund policies, and responsive support can prevent buyers from going straight to the bank.

2. Use clear billing descriptors

Confusing statement names cause avoidable chargebacks. Merchants must ensure billing labels match their storefront branding and that they’re easy to recognise.

For example, if a store is called “Meadow Lane Cosmetics” but the descriptor says “MLC Holdings Ltd”, customers may not connect the dots. It’s a small mismatch that can potentially cause a lot of unnecessary disputes.

3. Track delivery and set expectations

For physical products, tracked and signed delivery provides evidence in case of disputes. For digital or subscription services, send activation and reminder emails so there’s a verifiable record of consent.

4. Know when to fight back

If a business has done everything right – product delivered, service used, records in place – they can dispute a chargeback. This process, known as “representment”, gives merchants a chance to recover the funds and signal to issuers that they’re a credible, documented operation.

Representment only works if all of the documentation is tight. Clear timestamps, delivery confirmations, proof of communication, and usage logs (in the case of digital products) all strengthen a merchant’s case. They’ll still pay the fee – but recovering the sale and maintaining their reputation with the acquirer can be worth it.

Support Isn’t Just Service – It’s Prevention

Even a simple, fast human reply can stop a chargeback in its tracks. In many cases, chargebacks are a signal that customer support systems aren’t fast or visible enough. Merchants who track chargeback sources often find preventable patterns – questions that go unanswered, delays in refunds, or confusion over what was delivered.