How to Prevent Chargebacks in Ecommerce: Updated 2025 Guide
With more transactions happening online, the risk of ecommerce fraud and the frequency of customer disputes have increased. As a result, chargebacks have become a significant, and unfortunately unavoidable, aspect of ecommerce. There has been an uptick in both chargeback fraud and disputes in the US, as consumers are increasingly circumventing the traditional refund process and disputing transactions with banks and card issuers to address service-related issues, such as receiving damaged goods. Total worldwide ecommerce sales are expected to grow to 7.3 trillion in 2025. It’s estimated that over $47.8 billion was lost to digital fraud in 2024, reflecting a significant 15 per cent increase from previous years. By 2026, it’s estimated that global chargeback transaction volumes will reach 337 million, which will be a 42 per cent increase from 2023 levels.
While chargebacks offer plenty of protection for consumers, they can seriously hurt online retailers. As well as the loss of revenue, a chargeback can have a butterfly effect which can undermine your reputation, bite into your bottom line, and hurt everyone on your supply chain, including the end consumer.
Learn how to navigate consumer disputes and chargebacks in 2025 to protect your ecommerce business. In this blog, we’ll show you how to identify potentially fraudulent transactions, how to prepare for a chargeback dispute, and where to find plenty of tools and resources to navigate and prevent fraudulent purchases and chargebacks. We’ll also explore how to prevent legitimate chargebacks, so your business can run smoothly all year.
What are chargebacks in ecommerce?
Chargebacks are a type of consumer protection designed for credit card users. A chargeback occurs when a customer contacts their bank to dispute a payment made on their debit or credit card. If the dispute is accepted, the bank retrieves the funds from the business and refunds the customer.
Although they sound similar, chargebacks and refunds are not the same. With refunds, customers contact the retailer, who voluntarily transfers money back to the customers according to their refund policies. With chargebacks, customers contact their bank, which retrieves funds from the retailer and may impose a chargeback fee.
Chargeback processes vary between banks and card issuers, but the standard chargeback process is as follows:
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The customer contacts their bank or credit card issuer to dispute a charge.
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The issuing bank reviews the customer's claim and, if deemed valid, temporarily reverses the charge, debiting the merchant's account and crediting the cardholder.
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The merchant receives a notification from their payment processor about the chargeback, including details of the dispute (e.g., reason code, amount, supporting documents).
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The merchant chooses whether to accept or dispute invalid chargebacks. This may include providing evidence that the transaction was valid, such as proof of delivery or other communications.
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The issuing bank reviews the evidence submitted by the merchant and decides whether to uphold the chargeback or reverse it.
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If the merchant and the bank cannot come to an agreement, the case may escalate to arbitration, which may incur additional costs or fees.
The time limit on chargeback claims varies between credit card issuers, but most limits fall between 45 and 120 days from the transaction date. Because other providers set these limits, you cannot circumvent them through your return policy.
What is a chargeback ratio?
Your chargeback ratio, also known as the chargeback rate, calculates the percentage of your transactions that result in chargebacks. You can calculate the chargeback ratio using the following formula:
Number of chargebacks/Number of transactions x 100 = Chargeback ratio
It’s important to keep track of your chargeback rate, as this number will directly affect your mobility when it comes to payment processors. Banks are required to provide card issuers with chargeback ratios for each merchant account. Ideally, ecommerce merchants should keep their chargeback rate below 1 per cent. While some industries have higher thresholds, many businesses are considered high risk at or above 1 per cent. Note: Your chargeback rate also includes fraudulent chargebacks.
Common reasons for chargebacks
Chargebacks arise from disputes over purchases, fraud, or unauthorised transactions. These disputes can be legitimate, such as in cases of identity theft, or they can be fraudulent.
Common reasons for chargebacks include:
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The transaction was made using stole credit card information.
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The product or service was not delivered.
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The product was not as described.
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Duplicate charges (either caused by technical glitches or by the customer).
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General dissatisfaction with the product/service.
Chargebacks are designed to protect consumers. However, they can easily be abused by fraudsters. While not all chargebacks are caused by fraud, data from Visa suggests that up to 75 per cent of all chargebacks are the result of friendly fraud - that is, fraud committed without malicious intent. Friendly fraud may occur because:
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The customer forgot they made the purchase and assumed it was unauthorised.
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The customer was impatient and requested a chargeback before receiving the item.
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Another family member (often a child) made an unauthorised purchase using the legitimate cardholder's account (also known as family fraud).
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The customer received the product but was not satisfied with it or felt they were scammed (even if they received the product as described).
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The customer regretted the purchase and instead of following the store’s return policy, initiated a chargeback.
Despite its name, friendly fraud is anything but. In a survey by Statista, friendly fraud affected 34 per cent of merchants, with 70 per cent of merchants in Australia and Canada reporting they had been targeted. It’s also estimated 83 per cent of friendly fraudsters will be repeat offenders. This is why it’s important to catch the signs of friendly fraud early and prevent future chargebacks.
The impact of chargebacks on your business
Chargebacks can harm businesses in a variety of ways, not just a loss of revenue. Here are some of the ways that chargebacks can impact your ecommerce business.
Loss of income
The most obvious way chargebacks hurt businesses is the loss of income. Not only do businesses lose any profits from the sale, but payment processors and banks may charge chargeback fees, making businesses lose additional revenue. Whether a customer needs to return the product may be up to the credit card company or issuer's discretion - even if you win the chargeback dispute, you may not recoup any shipping costs involved in reverse logistics. Finally, there are other indirect costs, such as the time spent disputing, damage to reputation (therefore a loss of future income potential), and possible loss of payment processing privileges. Frequent cash flow disruptions caused by chargebacks can prevent you from reinvesting in your inventory, marketing or other operational costs, halting business growth.
Lost customer loyalty
Over time, high chargeback rates can potentially damage your reputation with customers.
As with high return rates, a high chargeback ratio may signal to customers that your product quality is questionable, your customer service is lacking, or your business engages in deceptive practices. If your business is losing revenue and your customer service teams are tied up in disputes, your overall service experience may suffer, leading to customer dissatisfaction and further complications. Additionally, suppliers or third-party vendors may be less willing to work with businesses experiencing frequent chargebacks.
Payment processor penalties
Payment processors and gateways have an acceptable range for chargebacks, depending on the industry. If your business has frequent chargebacks, your payment processor may classify you as a high-risk merchant. This can lead to penalties, higher processing fees, or account termination. This will make it harder to secure payment processing services in the future.
Strategies to prevent chargebacks in ecommerce
Clear product descriptions and images
One of the easiest ways to improve your chargeback rate, as well as your general customer experience, is to create clear and accurate product descriptions and images. Around 5-6 per cent of chargebacks occur because the item didn’t meet expectations or did not fit the product description. By improving your product descriptions and images, you’ll help customers shop with confidence. Ensure that your product descriptions and images are simple and give a clear idea of what the product is, does, and looks like. Regularly update your descriptions to reflect consumer needs and trends. If you’re using lifestyle images, put products in contexts that make sense to your target audience. Make sure to show your product from multiple angles.
If you’re struggling to produce clear and engaging content for your dropshipping product pages, check out our blog “Best Dropshipping Tools in 2025 for Business Growth”. Here, you’ll find plenty of tools to help you write, polish and edit descriptions, product photos, and more.
Simple and transparent processes and policies
Over 81 per cent of customers find filing chargebacks more convenient than initiating a refund with retailers. To prevent chargebacks, you’ll need transparent policies regarding payment procedures, return and refund processes, shipping details, and any additional fees or charges. You’ll also want to keep your returns process simple, fair, and easy to understand. The more confidence your customers have in your processes, the less likely they are to reach out to their bank. By developing simple and transparent processes, you’ll also be protecting your business from fraud and securing your reputation.
Secure payment processing
Choosing the right payment processor is incredibly important for your business, and their level of security is a crucial component. You’ll want to ensure your payment processor complies with industry standards and local laws and offers a wide variety of secure payment methods to appease all kinds of customers. Customers are more likely to complete purchases - and less likely to ask for a chargeback - when they feel confident their credit card details are safe. Secure payment processors can also help you detect fraud early, offer additional protections for your dropshipping business, and ultimately support your long-term growth.
Exceptional customer service
Providing excellent customer service is key to preventing chargebacks, and cushioning any blows to your reputation in the face of a dispute.
The following customer service practices will be your first port of call when it comes to chargeback prevention:
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Review orders carefully before processing. Look for errors, duplicate orders, or strange purchasing behaviour. Even if you use fraud detection equipment, you should manually review high-risk orders, such as large purchases, to prevent fraud. Even if orders are legitimate, preventing mistakes now will lower the chance of a chargeback later.
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Act quickly when it comes to refunds and enquiries. 75 per cent of consumers consider fast response times the most important attribute of the customer experience, and nearly half of all customers expect companies to respond in 4 hours or less. By acting fast and keeping customers satisfied, you lower the risk of them becoming impatient and reaching out to their bank.
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Set accurate expectations upfront, particularly when it comes to shipping. Keep customers informed about shipping times, their order status, and any delays. Provide multiple support channels such as email and live chat, and keep your contact information easy to find.
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Check in after delivery to ensure satisfaction and address potential issues. The earlier you anticipate a customer’s needs, the easier it is to prevent a dispute.
Using fraud detection tools to minimise risks
There are various fraud prevention tools that businesses can use to minimise risk, provide chargeback protection and reduce fraud. Common fraud detection tools include:
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Address Verification Service (AVS): This check verifies the card details provided to the business, such as the billing and shipping addresses, matches the details on file with the cardholder’s bank.
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Device fingerprinting: This technology analyses unique identifying details of the devices used to make a transaction, such as IP addresses, geolocation and behavioural data. Suspicious data or activity can then be monitored and flagged for fraud.
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3D Secure (3DS): Customers are required to verify their identity to their bank prior to making a purchase.
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AI assistance: Some tools use AI and machine learning to assign fraud risk scores to transactions based on historical data and patterns.
When choosing the right platform or payment processor for your ecommerce stores, check what tools they use and/or which tools are available to you.
For some dropshippers, an all-around fraud protection program may be more beneficial. There are many platforms available for ecommerce businesses of all sizes, including:
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Kount: An AI-driven platform under Equifax that offers comprehensive ecommerce fraud protection.
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Forter: A single platform for identity intelligence, focused on fraud protection while maintaining customer lifetime value.
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Accertify: A risk management platform that provides end-to-end protection from existing and emerging threats.
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Stripe Radar: Integrated within the Stripe payment processing system, Radar offers ecommerce fraud prevention and detection tactics that evolve with your business.
For more fraud prevention strategies, including how to reduce chargebacks, check out our blog "7 Common Types of Ecommerce Fraud & How to Prevent Them"
How to respond to chargeback disputes effectively
Keep extensive and clear documentation regarding customer disputes
To dispute a chargeback, the first thing you’ll need is evidence. To have sufficient evidence, you’ll need a paper trail. Keep detailed records of customer accounts, transactions, communications, and delivery confirmations. Other records you may want to keep include IP addresses, login records, previous purchases, and any other proof that the customer purchased and/or used your product. You’ll also want to familiarise yourself with the various reason codes that card networks use to indicate a dispute’s reason and tailor your records and responses accordingly.
Train employees in fraudulent transactions and chargeback fraud
Ensure all employees are trained in basic fraud awareness. Employees should be able to detect ecommerce fraud patterns as they occur, understand who commits fraud and why, and effectively resolve disputes. You should also have a clear reporting and documentation process to ensure proper evidence collection and a streamlined dispute resolution process. You may also want to examine how well your employees know your business, its policies and its processes. The more your team knows the business, the more empowered they will be to prevent fraudulent activity.
Use chargeback management tools
Chargeback management tools and platforms are software solutions designed to help businesses handle chargebacks efficiently, reduce dispute rates, and recover lost revenue. These tools typically offer features such as real-time dispute monitoring, automated response templates, fraud detection, and analytics to identify chargeback trends. For busy dropshipping businesses, these tools can be a life-saver, preventing chargeback fees and preserving your reputation with the bank.
Your ideal tool will depend on your business size and structure. Here are some of the top solutions available to Australian businesses:
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Chargeflow: An automated chargeback management system that comes with a leading industry win-rate and ROI guarentee.
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Justt: Syncs with over 40 payment service providers and uses over 500 data points to craft compelling evidence and optimise your win-rate.
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Chargeback Gurus: Provides end-to-end transaction dispute management services custom-tailored to their clients.
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Chargeblast: A verified partner with Stripe and Shopify, Chargeblast aims to proactively prevent chargebacks from reaching your business.
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Chargeback.io: Connects quickly with your payment provider to alert you of incoming chargebacks before they are filed, allowing you to automatically issue refunds and minimise payment processor issues or fees.
Educating your customers to avoid misunderstandings
The best way to prevent legitimate chargebacks and prevent ecommerce fraud is to educate customers. The more confident your customers are in their online purchase, both at checkout and after delivery, the less likely they are to ask for a chargeback. Here are some of the ways you can avoid chargebacks, instill confidence, and protect your business from fraud.
Use clear billing descriptors
Customers often mistake legitimate transactions for online fraud when they cannot identify their purchase from the billing description. Use recognisable names for billing descriptors, making it easier for customers to identify specific purchases. If you use an alternative trading name for your billing descriptors, should let customers know in their post-purchase email or on your website.
Emphasise fraud protection
Where possible, show customers how you protect your business (and their data) from fraud. Tell them what verification processes you use and how you store their information. Modern customers value transparency from all facets of a business, particularly when it comes to customer data, privacy and fraud protections. The more transparent you are about your customer-facing security protocols, the easier it will be to build trust in your ecommerce business and products.
Provide value-added content
Offer tutorials, guides or other educational content on how to use your product. You can also provide additional care instructions and troubleshooting tips to ensure your customers know exactly how to use your product and keep it in working condition throughout its life cycle. This will prevent chargebacks caused by product breakages or misuse. Remember: the time limit for a chargeback can be as high as 120 days. If a customer breaks an item during this time (whether by accident or purposefully) they may try to initiate a broken item dispute. This type of valuable content also serves to boost your content marketing strategy and secure future purchases.
Summary
Chargebacks remain a significant challenge for ecommerce businesses in 2025, posing risks to revenue and reputation with both customers and payment processors. Prevention strategies include implementing secure payment gateways, maintaining clear refund and return policies, and offering responsive customer support to address issues before they escalate. Leveraging advanced chargeback management tools and educating customers about their transactions also play a crucial role.
By prioritising transparency, leveraging technology, and fostering trust with customers, ecommerce businesses can minimise chargebacks and thrive in a competitive digital marketplace.