9 Ways E-commerce Stores Can Significantly Reduce Chargebacks

Chargebacks are one of the most expensive costs an e-commerce store deals with. Learn the strategies to reduce these instances and increase profit.


The most common type of e-commerce fraud is chargebacks. First-party fraud, also known as friendly fraud, occurs when an online shopper buys something with their credit card and then requests a refund from the credit card company after receiving the goods they bought. For some retailers, these chargebacks can account for up to 80% of all fraud losses.

Chargebacks are the gift that keeps on giving. Beyond the loss of goods, you may be hit with non-refundable chargeback fees that can range up to $50. That is in addition to transaction processing fees paid for the initial purchase. The cost of shipping is lost as well. While you can dispute the chargeback, often the time involved can be lengthy and success rates are low.

Multiple chargebacks can hurt your business risk and reliability rating and cause bigger problems or even higher fees on future transactions. If your business goes above a credit card company’s chargeback threshold, fees increase for chargebacks. Some credit card companies will force you to pay for a credit review before allowing additional purchases.

Consumers Are Bypassing Sellers

More than ever, consumers are bypassing merchants when they have an issue. Instead, they go right to their credit card issuer with a complaint. They might see a charge they don’t recognize on their monthly bill and dispute it, or they might take advantage of credit card companies’ liberal policies about protection. By the time it makes it to your bank, you will already be on the defensive. You’ll need to provide proof of the purchase and evidence they received the goods in question.

Once the bank reviews the information you’ve supplied, they’ll make a ruling. If they rule in the customer’s favor, you’re hit with fees and other expenses.

Ways to Reduce Chargebacks

No matter how you slice it, chargebacks are bad news. Even if you do everything right, the best-case scenario is you lose the time it takes to fight them. The best advice is to do what you can to prevent them from happening in the first place by following these best practices.

1. Accurate Product Descriptions

Make product descriptions and details as clear as possible to avoid disappointing customers when they receive goods.

2. Accurate Inventory Counts

Inaccurate inventory counts can lead to stock-outs or delay shipping. Frustrated customers may ask for chargebacks because something hasn’t shipped on time — even after receiving the items.

3. Record Keeping

Keep a detailed record of purchases that are easily accessible for your staff and your customers.

4. Track Shipments

Use trackable delivery services that provide delivery receipts and consider requiring signatures for delivery.

5. Return Policies

Have a return policy that makes it easy for online shoppers to return goods.

6. Great Customer Service

The better you take care of your customers, the less likely they are to file for chargebacks before reaching out to you.

7. Easily Identifiable Business Name

Make sure customers can easily identify your company when looking at credit card bills (DBA Name).

8. Check for AVS Mismatch

Address verification services (AVS) will flag credit card sales if the billing address used during checkout do not match the billing address on file with the issuing bank

9. Email Analysis

By implementing a reverse email lookup, you can analyze emails to create risk profiles and minimize potential fraud.

Reverse Email Lookup Can Reduce Chargebacks

One of the best ways you can avoid chargebacks is by using a reverse email lookup or email profiling process. Email addresses are linked to a vast amount of non-purchase information that can be used to access risk.

For example, a simple SMTP check can ping the email server to make sure the email provided by a purchaser exists. That can quickly flag emails that may be fraudulent, but it will not catch everything. Real email addresses are sold on the deep web from data breaches. An email checker can compare emails to lists of those included in data breaches.

There are also websites that offer a disposable email address for temporary use. If an email comes from one of these domains, it may be a warning sign and should be part of assessing risk. Conversely, an email from an established domain or one that requires two-factor authentication can also affect risk scoring.

Scammers often use multiple fake emails. They create them quickly and often do not pay attention to normal spelling or accuracy. If there are too many special characters, email names that are close-but-not-quite-the-same as the name listed on the order, or nonsensical words, a reverse email lookup can detect whether the email address looks suspicious.

The best reverse email lookup providers will also match email addresses with social media platforms, such as LinkedIn, Facebook, or Instagram.

In the old days, every retail store used to have a book with names in it of people that had bounced checks. When somebody wrote a check, they would look up the name before accepting it. Today, the same practice holds but can be done in real-time and check not just your blacklist but those of other companies. If an email address has been used in a fraudulent transaction before, the system will flag it.

Automate the Process

Here’s some good news. Doing all these steps manually would take a lot of time. You should use an email profiling provider that does all of this in real-time. Artificial intelligence and machine learning can scan email addresses in the background and provide a risk assessment.

Businesses can determine their appropriate threshold of risk and customize the platform to allow transactions that meet the risk profile while either denying transactions or flagging them for further review.

Minimize Chargeback Risk

Studies show that e-commerce sellers wind up paying $3.29 for each dollar of fraud they encounter. That adds up fast — accounting for more than 2% of annual revenues. Chargebacks, fraud, and expenses related to chargebacks cost e-commerce retailers some $40 billion a year.

Take these steps to be proactive in your fight against chargebacks. Minimizing your risks can significantly increase your profit margin.

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