Chargebacks: What Are They and How Do You Handle Them?

For eCommerce businesses, chargebacks are more than just a financial inconvenience—they’re a threat to long-term sustainability. Understanding the chargeback process and implementing a clear strategy to manage them is critical for every online merchant. In this article, we’ll explain what chargebacks are, what causes them, and how you can both prevent and respond to them effectively.

1. What Is a Chargeback?

A chargeback occurs when a customer disputes a transaction with their card issuer, and the bank forcibly reverses the payment. Unlike a refund, which is initiated voluntarily by the merchant, a chargeback is initiated by the customer’s issuing bank—and often without prior notice to the merchant.

The process was originally intended to protect consumers from fraud or errors. But in today’s eCommerce environment, chargebacks can stem from misunderstandings, buyer’s remorse, or abuse known as friendly fraud.

2. How the Chargeback Process Works

Here’s a simplified overview of the typical chargeback flow:

1. Customer files a dispute with their issuing bank.
   
   

2. Issuer reviews the claim and forwards the dispute to the payment network.
   
   

3. The payment processor notifies the merchant of the chargeback.
   
   

4. The merchant responds (or not) with supporting documentation.
   
   

5. The issuer makes a decision to uphold or reverse the chargeback.
   
   

If the chargeback is upheld, the merchant loses the transaction amount and often pays an additional chargeback fee (usually $15–$50). Repeat offenders may face penalties or even account termination.

3. Common Reasons for Chargebacks

Chargebacks are usually classified into three main categories:

• Fraudulent Transactions
  The cardholder claims they didn’t authorize the purchase. This includes both actual fraud and friendly fraud.
  
  

• Customer Disputes
  This includes claims that the product was not delivered, was defective, or didn’t match the description.
  
  

• Processing Errors
  Issues such as being charged twice or being charged the wrong amount.
  
  

4. What Is Friendly Fraud?

Friendly fraud occurs when a legitimate customer files a dispute—intentionally or not. It can happen when a cardholder:

• Forgets they made the purchase.
  
  

• Doesn’t recognize the merchant name on their bank statement.
  
  

• Tries to avoid going through a standard return process.
  
  

• Claims a subscription renewal was unauthorized.
  
  

While the name may sound benign, friendly fraud can be one of the most difficult types of chargebacks to fight.

5. The Real Cost of Chargebacks

Beyond the loss of revenue, chargebacks affect your business in several ways:

• Chargeback fees: Processors typically charge $15–$50 per dispute, even if you win.
  
  

• Lost merchandise: Goods are rarely recovered after a chargeback.
  
  

• Increased risk score: High chargeback ratios can put you on monitoring programs like Visa's VFMP or Mastercard’s MATCH list.
  
  

• Processor penalties or account closure: A chargeback rate above 1% can jeopardize your merchant account.
  
  

6. How to Prevent Chargebacks

Preventing chargebacks starts with setting the right expectations and being proactive:

• Use clear billing descriptors: Make sure your business name is recognizable on credit card statements.
  
  

• Provide detailed product descriptions: Include high-quality images, specs, and shipping timelines.
  
  

• Send order confirmations and tracking details: Proactively inform customers of status updates.
  
  

• Use fraud detection tools: Employ AVS, CVV checks, velocity limits, and geolocation filters.
  
  

• Maintain great customer service: Offer fast, clear communication and easy returns to resolve issues before they escalate.
  
  

7. How to Respond to Chargebacks (Representment Process)

If you believe a chargeback is unwarranted, you have the right to dispute it through representment:

1. Gather compelling evidence – invoices, shipment tracking, email correspondence, signed terms, etc.
   
   

2. Submit a timely response – Usually within 7–10 days from notice (deadlines vary by processor).
   
   

3. Tailor the rebuttal to the reason code – Each chargeback has a specific reason code with its own evidence requirements.
   
   

4. Stay organized – Track dispute outcomes and learn from them to adjust future policies.
   
   

Keep in mind, winning a dispute doesn’t refund your chargeback fee, but it can restore lost revenue and protect your merchant standing.

8. Lasso Checkout: Your Ally Against Chargebacks

At Lasso, we provide merchants with built-in tools and data to help you:

• Detect and prevent fraud before it happens.
  
  

• Access complete transaction records to support your case during disputes.
  
  

• Get alerts on potential chargebacks with enough time to act.
  
  

• Maintain a healthy chargeback ratio to preserve your processing privileges.
  
  

Our platform is optimized to help you reduce disputes and protect your revenue—all while keeping your checkout process smooth and conversion-focused.

In Summary

Chargebacks are a costly but manageable part of running an online business. Merchants who take charge with clear communication, anti-fraud tools, and a solid dispute strategy are best positioned to protect their revenue and reputation.

Quick takeaways:

• Chargebacks can stem from fraud, misunderstandings, or customer dissatisfaction.
  
  

• Friendly fraud is a growing and dangerous challenge.
  
  

• Prevention starts with transparency, customer service, and fraud controls.
  
  

• Merchants have the right to fight chargebacks through timely, evidence-backed responses.
  
  

• Tools like Lasso Checkout can help you automate prevention and dispute management.
  
  

If chargebacks are cutting into your margins, it may be time to review your payment tools and strategy. Lasso can help you reduce risk, recover revenue, and scale smarter.