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Blog on e-business and online payments.

Chargeback Levels in Online Business – What Is the Norm?

Why should an Internet merchant bother with lowering the chargeback rate? Why constantly keep the matter on the radar? (Such a nuisance!) After all – it’s just another way for the client to get the money back, right?

Well, not quite so. By now we all probably know that.

Chargeback hasn’t that much in common with a plain ol’ refund. Sure, the funds are returned to the client, but you can’t really say it’s a happy ending. Not for the merchant at least. When a dispute takes place and the cardholder is returned the sum they originally paid, the merchant has to deal with additional costs, such as processing fee and chargeback fee.

Not scary enough? Don’t forget: there are penalties the seller is usually burdened with when chargeback rate skyrockets. (Please insert ironic ‘Yay!’ here.)

And now for the ‘best’ part: if your clients just go away without asking for a refund, there is a possibility that they are angry. Angry to the point where they can start spreading negative virality around. Which always costs you big time. Refunds can make people love you if you handle things well, chargebacks just don’t have that power.

Chargebacks are, to put it simply, totally unwanted, yet also almost unavoidable.

So. Should or shouldn’t one fight those disputes? If yes – when to intensify the battle against them? Are there any universal rules for how much can your amount of chargebacks increase without blowing your whole company to smithereens?

Should I Immediately Start to Worry About All of My Chargebacks?

Taking into account what was said up until now, there is one universal rule: “the less chargebacks, the better.” If the ratio stays on the level of 1 chargeback to 100 transactions, you can say everything looks normal, generally speaking.

It is said that when you cross the magical line of 1% – you are in for a trouble. Of course, you need to keep in mind the fact that every business operates in a slightly different way. Things won’t look the same in SaaS and e-commerce. In addition to that, you need to take into consideration things such as trading volume, sales channels, customer acquisition methods, transaction values etc.

Be aware: your partners (PSPs, acquirers) will start to look at you more cautiously if your chargeback rate is higher than 1%, or if there is a sudden spike in your chargeback rates. From some of the payment processors you can expect inquiries straight away.

The fraudulent activity is said to be the merchant’s responsibility and if the acquiring bank ends up with a fine from Visa or MasterCard, it probably will pass that fine on to the merchant, in one form or another. It can be higher rolling reserve or additional fee. Excessive chargeback can also affect transaction limits. If the dispute rate gets too high, the merchant won’t be able to process normally and will encounter a risk of losing the ability to offer credit card payment option. Nobody wants that.

Do you think these rules are too strict? Possible. Not fair? Maybe. Should we even try to judge though? It is what it is, like in case of a sudden earthquake or tornado, or some other natural disaster, there’s nothing you can do about the chargeback scourge. You just need to sit it out in the shelter, shaken up, and hope for the best, right?


Prepare the Best You Can

The amount of chargebacks you get influences the way your business works. It’s important to remember that the more chargebacks there are, the more issues you’ll encounter when it comes to people trusting both you – the merchant – and your product.

If you want to be treated well by your business partners – you need to be proactive and prevent chargebacks from happening frequently. There are many ways to do this. We’ve already written about most of them here on our blog.

To cut a long story short: along with the chargeback you’ll usually receive a reason code and here’s where your detective skills should come into action. You need to identify which step of the process is usually leading your customers to dispute the charge. When you find the reason, you are able to make adjustments in the product or the way it is presented and delivered.

Think of all of the possible reasons. This means you have to ask yourself many questions in regard to your online presence, your available products and the process of acquiring them by client.

Just a few quick questions to get you started.

Are there many unauthorized (fraudulent) transactions on your merchant account? Think about ways to tighten your security. (Maybe denying high-risk transactions or 3D Secure are a way to go?)

Is everything clear in your Terms of Service and privacy policy? Does your client know where to find ToS on your page?

Is there contact info visible at all times while the user is browsing your page?

Do you pay enough attention to your communication channels and act quickly when a client contacts you?
Is the value of the delivered product exactly the same as what one can imagine from descriptions on your page and advertisements?

Can it be that the product does not reach your clients at all or reaches them in a way that makes the buyers question the worth of the purchase made? Missing functionalities? Too much functionalities?

Last but not least: have you ever wondered why your clients churn? A good way to learn would be to start using customer feedback tools and analytics. With the knowledge you gain, you are able to offer personalised help, tailored to your client’s needs. Instead of putting all of your resources into finding new clients (they are most likely to issue a chargeback), make sure that those who are already on board are happy and want to stay with you forever.

Dig in deep, implement the necessary changes, and everything will turn out just alright.


Experienced executive, people-oriented leader, doer, entrepreneur. CEO at PayLane. Business educator on Also on Twitter.

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