What are chargebacks and how do I prevent them in my online store?

What are chargebacks and how do I prevent them in my online store?

If you have received a chargeback notification from the payment processor you use in your store, you need to take the following steps:

What is a chargeback?

If you accept credit cards in your online store, you might have to deal with chargebacks. A chargeback is a demand made from a bank to return funds to a cardholder.

When a cardholder has an issue with a charge on their card, they contact their bank and dispute this charge. The cardholder can be your customer or someone who thinks their card was fraudulently used for buying something in your store. The bank opens a dispute for a chargeback and you can try to resolve it by replying and providing evidence that the transaction was legitimate.

Note: Chargebacks can happen if a credit card or PayPal account was used illegally for buying something in your store. If you receive a chargeback, contact your payment processor immediately.

The bank or credit card company that issued the card reviews the evidence to make a decision. Then they close the chargeback in either your favor or the cardholder's favor. If you win the chargeback, you get the disputed amount. If the cardholder wins the chargeback, the disputed amount is returned to them.

There can be situations when it is better to ask your customer to close the chargeback dispute and issue a refund to them yourself. See our guide about refunding your orders.

Locating a Disputed Order

When you get a chargeback, you need to understand which order was disputed. Log in to your payment processor account and find the transaction that was disputed. Copy the transaction ID. You can also copy it from the chargeback notification.

Select the E-Commerce tile, and go to My Sales > Orders. Paste the transaction ID in the search field.



You will see the order that was disputed. You can find the customer’s email and phone number in the order details so you can contact the customer to find out why they disputed the payment.


Reasons for Chargebacks

You will see the chargeback reason in the chargeback notification from your payment provider. There are three standard reasons:
  1. Item not received: a customer claims they didn’t receive the product they ordered and paid for.
  2. Item significantly not as described: the customer says the item they received is considerably different than what they expected based on the description. For example, they ordered a black mug but received a blue plate.
  3. Unauthorized transactions: a customer claims that the purchase was made without their consent or permission or they were charged twice for the same item. Be careful when you see this reason as this can be a mistake as well as the actual fraud. Contact your payment processor immediately. 

Next Steps

When you receive a chargeback, you can either accept it or dispute it. This should be done in your payment processor account.

It is important to contact your payment provider as soon as possible. If you agree that the payment should be returned, it is best to accept the chargeback. If you do not agree with the chargeback and want to dispute it, you need to submit evidence to the payment processor. Evidence usually includes:
  1. the date and time when you fulfilled the order;
  2. the billing information the customer provided;
  3. the IP address and country used for the order;
  4. email messages or any other communication you had with the customer;
  5. shipping and tracking information for the order (if the product or service was digital, an activity log that shows that the customer accessed the product or service);
  6. descriptions and pictures of the products from your store that prove that they were as described.
Below you will find chargeback instructions for the most popular payment providers:

Preventing Chargebacks

If you accept online payments by credit cards, chargebacks might occur. It is important to maintain a low chargeback rate not only because chargebacks are bad for your business, but also because some payment providers can block your account if you receive many chargebacks.
You can prevent chargebacks by following the recommendations below:
  1. Closely review and investigate high-value or suspicious orders before fulfilling them.
  2. Respond quickly to customers’ inquiries, especially if they are about payment processing and shipping.
  3. Make sure you set reasonable expectations for your customers regarding when they can expect the delivery. Provide a shipment tracking number if possible.
  4. Keep your customers updated on the order processing. Make sure you send tracking information for orders that need to be shipped.
  5. Add your contact information (including phone number and address) to your site and store and make sure it is easy to find.
  6. Add your store policy (including your return policy) to your site and make it easy to find.

    • Related Articles

    • How do I refund an order from my online store?

      You can give a customer a full or a partial refund for an order. Tip: To actually refund the payment, you will need to log in to the merchant account of the payment processor you use in your store and issue a refund from there. To notify your ...

    • How do I manage customer notifications from my online store?

      Customer notifications are email messages that customers automatically receive from your store after they have successfully placed an order, you have changed their order status, the digital files they bought are ready to be downloaded, etc. You can ...

    • How do customers checkout in my online store?

      Your store has a secure one-page checkout where your customers enter their shipping and payment details and leave order comments before placing orders. Checkout Steps After a shopper chooses products and adds them to their shopping cart, they can ...

    • What is Strong Customer Authentication?

      On September 14, 2019 a new regulation for online payments called Strong Customer Authentication (SCA) took effect in Europe. It’s aimed at reducing fraud and providing more security for online payments. As a store owner selling to customers in ...

    • How do I accept orders in my online store?

      When customers add products to their cart and head to checkout, they can choose how they want to pay for their order using any of the payment methods that you've enabled. Accepting Orders Online You can use online and offline payment methods to ...