What Is a Chargeback?
A chargeback occurs when a cardholder disputes a transaction with their bank, and the bank forcibly reverses the payment. The merchant loses the sale amount, the product or service already delivered, and a chargeback fee of $15–$100 per incident. Excessive chargebacks (above 1% of transactions) can result in account termination or placement on the MATCH list.
Common Causes of Chargebacks
- Friendly fraud: The customer received the product but claims they didn't (accounts for 60–80% of chargebacks)
- True fraud: A stolen card was used for the purchase
- Merchant error: Wrong amount charged, duplicate transaction, or unclear billing descriptor
- Service disputes: Customer unhappy with quality and went to the bank instead of the merchant
Prevention Strategies
1. Use Clear Billing Descriptors
Your billing descriptor, the name that appears on the customer's bank statement, should clearly identify your business. "MID*29847" means nothing; "JOES_PIZZA_DENVER" prevents confusion calls to the bank.
2. Require Signatures and CVV
For card-present transactions, always use chip (EMV) or tap, never swipe. For card-not-present, require CVV and AVS (Address Verification Service). These shift fraud liability to the card issuer.
3. Send Transaction Receipts Immediately
Email or text receipts the moment the transaction completes. This creates a paper trail and reminds the customer of the purchase before they forget and file a dispute.
4. Implement Chargeback Alerts
Services like Ethoca and Verifi CDRN alert you before a chargeback is filed, giving you the chance to issue a refund proactively. A refund costs you the sale; a chargeback costs you the sale plus fees and ratio damage.
5. Keep Detailed Records
When you need to dispute a chargeback, documentation wins. Keep signed receipts, delivery confirmations, email correspondence, IP logs for online orders, and photos of completed work for service businesses.
How FINESSE Helps
FINESSE provides chargeback monitoring, alert integration, and dispute support as part of our merchant services. We help you maintain a healthy chargeback ratio and fight invalid disputes effectively. Contact us for a free account review.