Merchants often have a love-hate relationship with payment cards, though retail stores wouldn’t exist for long without them. The days of “Will that be cash or check?” are gone for good.

For ecommerce merchants, payment cards are even more crucial. Debit and credit card transaction processing provides the lifeblood to sustain ecommerce businesses, and to help them grow.

So what triggers the merchant/payment card love-hate relationships?

It’s those darned chargeback fees. In fact, the whole chargeback issue can drive some ecommerce merchants nuts. Especially when their chargeback rates keep growing month after month.

Dire warnings greet them via mail (digital and postal), from the banks holding their merchant accounts — credit card companies — and even their payments processors.

If you’re an ecommerce merchant who likes to stay in control, you can keep chargebacks (and those blasted chargeback fees) in line with the right help, so no one goes postal.

Chargebacks Defined

Chargebacks occur when a customer calls her issuing bank to dispute a transaction and request a refund. If the complaint “appears” genuine, the bank reverses the transaction — effectively taking earned revenue back from the merchant to refund it to the consumer.

According to experts at Verifi (a provider of end-to-end payment protection and management solutions), 86% of the time customers bypass merchants and go directly to their issuing banks to dispute transactions. As Verifi notes, the problem quickly scales up.

“Merchants are not only hit with the cost of each reversed transaction, but there is added impact in the form of various fines, fees, and related operational expenses — not to mention the long-term damage to customer relations.”

The chargeback process exists to protect consumers, yet ignores the merchant at the front end. Customers go directly to the card issuer and “go over the merchant’s head” by filing chargebacks.

For details about the (fairly convoluted) chargeback process and chargeback fees, see this expert information.

What Causes Chargebacks?

Created in the seventies when payment cards flourished, the chargeback process and chargeback fines were meant to protect consumers from unscrupulous merchants and bad guys making purchases with lost or stolen cards.

Now — as ecommerce grows apace — online fraud grows with it. Anonymous cybercriminals steal payment card information and commit the modern version of credit card theft, CNP (card not present) fraud.  

Yet criminal fraud (transactions using lost or stolen cards/data) accounts for only about 10% of merchant chargebacks. Merchant and technical errors explain about 20%. The misnomer “friendly fraud” — sometimes called chargeback fraud — accounts for more than 50%.

Friendly fraud (the ugly step-sister of all fraud-related chargebacks) involves customers perpetrating fraud, not an identity thief or other unknown third party. Too often, they make an explicit decision to dispute charges that they KNOW are legitimate, pretending otherwise.

Steps you take with your website, your business model, and the data generated during online transactions are your best defense against fraud-related chargebacks and chargeback fees.

As experts at say, “Filing a chargeback instead of seeking a traditional refund when unsatisfied with a purchase is cyber shoplifting.” If only more consumers realized that.

Merchants Face the Music

Regardless of what caused the chargeback, merchants face ramifications short- and long-term. Immediate costs include lost revenue plus the chargeback fee of $20 to $100 per transaction.

The merchant may also lose any opportunity to re-sell the merchandise for profit, should the consumer choose to keep the merchandise — in spite of receiving a refund— as many do.

If a merchant’s chargeback rate gets too high (exceeds a threshold), excessive fines in the realm of $10,000 may be levied. (Thresholds and calculations vary among card brands, but the rate reflects a chargeback-to-transaction ratio. Find more detail here.)

Were that to happen, an ecommerce merchant might be forced into a “high risk” category merchant account. With some processors, that can mean higher processing fees and revenue reducing reserve accounts.

If the chargeback rate remains too high, the acquiring bank could terminate the merchant account. When that happens, the merchant is put on the MATCH list and is effectively “black balled,” unable to get another merchant account for five years.

Finally, a word on disputing chargebacks: Merchants have the right, but the process eats a lot of time and energy — sometimes for little gain. To be cost-effective, merchants need to employ a chargeback management strategy and choose their battles carefully.


Yes, chargebacks may be a cost of doing business. But the goal should be to avoid unnecessary chargeback fees whenever possible… Because you want to stay in control of your business, to watch it prosper and grow. And you are in control of the key business levers.

You control your website content, its ease of use, and the business practices that help you stay on track. Including crucial processes like customer service that make or break your success.

One particularly strategic aspect of ecommerce business you control is the choice of business partners — like your processing partner.

If you need help to reduce your chargeback rate over time — including fraud-related chargebacks and associated chargeback fees — then choose a payments provider who will help you do it.

The right processor works with you like a business partner, and if things get tricky he’ll still be around to help. Ensuring you have the right chargeback reduction plan in place is just one example.

He’ll ensure your payment processing operates seamlessly, to help your business thrive. Because his success mirrors yours, every time.