Chargeback Management Guide

Understanding Chargebacks

A chargeback occurs when a customer disputes a card payment with their card-issuing bank, resulting in the transaction amount being forcibly reversed and returned to the customer. Unlike refunds which you control, chargebacks are initiated by customers through their banks and processed whether you agree or not.

How Chargebacks Work

Step 1: Customer disputes transaction

Customer contacts their card-issuing bank claiming fraud, unauthorized charge, product not received, product not as described, or duplicate billing.

Step 2: Bank initiates chargeback

Customer’s bank immediately withdraws the transaction amount from your merchant account and returns it to the customer (provisional credit).

Step 3: You’re notified

Your payment processor notifies you of the chargeback, providing reason code and deadline to respond (typically 7-14 days).

Step 4: You gather evidence

You compile documentation proving the transaction was legitimate: order confirmations, delivery proof, customer communications, terms acceptance.

Step 5: You submit response

You submit evidence to your payment processor before deadline. They forward it to customer’s bank for review.

Step 6: Bank decides

Customer’s bank reviews evidence and either upholds chargeback (you lose) or reverses it (funds returned to you, customer re-charged).

Step 7: Possible arbitration

If you disagree with decision, you can escalate to card network arbitration (Visa/Mastercard), though this costs £500+ and rarely succeeds.

Chargeback vs Refund

Refund (you control):

• You decide to return customer’s money
• Voluntary process
• No chargeback fee charged
• Doesn’t count toward chargeback ratio
• You maintain good customer relationship
• Original transaction fee not refunded (you lose that)

Chargeback (customer/bank control):

• Customer disputes through bank
• Forced process
• £15-£30 chargeback fee charged regardless of outcome
• Counts toward chargeback ratio
• Damages customer relationship
• Can threaten your merchant account if ratio too high
• Time-consuming to dispute

Key takeaway: Always resolve customer complaints directly when possible. Issue refund yourself rather than forcing customer to pursue chargeback. Chargebacks cost more (fees + ratio impact) and damage your processing record.

Why Chargebacks Happen

Legitimate Reasons

Fraud: Cardholder’s card details stolen and used without permission. Genuinely unauthorized transactions.

Product not received: Customer ordered and paid but product never arrived or arrived significantly late.

Product not as described: Item received differs materially from description (wrong size, color, functionality, quality).

Defective product: Item arrived damaged, broken, or non-functional.

Duplicate billing: Customer charged twice for same transaction by error.

Cancelled subscription still billing: Customer cancelled recurring service but continued to be charged.

Questionable Reasons (Friendly Fraud)

“Friendly fraud” is when customers dispute legitimate transactions intentionally or through confusion:

Buyer’s remorse: Customer regrets purchase and files chargeback instead of requesting refund.

Family member made purchase: Spouse or child used card, cardholder doesn’t recognize charge and disputes it.

Forgets purchase: Customer doesn’t remember buying or doesn’t recognize merchant name on statement.

Easier than refund process: Customer finds chargeback simpler than following your refund procedures.

Keeping product + money: Customer receives product, likes it, but wants money back too (fraudulent).

Subscription forgotten: Customer forgot they signed up for recurring service, sees charge, disputes it.

Chargeback Reason Codes

Card networks assign specific codes to chargebacks. Common codes:

Visa codes:

• 10.4: Fraud – Card-Absent Environment (didn’t have physical card)
• 13.1: Merchandise/Services Not Received
• 13.3: Not as Described or Defective Merchandise
• 13.6: Credit Not Processed (refund promised but not given)
• 13.7: Cancelled Merchandise/Services

Mastercard codes:

• 4837: No Cardholder Authorization (fraud)
• 4853: Cardholder Dispute (quality/not as described)
• 4855: Non-Receipt of Goods or Services
• 4863: Cardholder Does Not Recognize (forgot purchase)

Understanding reason codes helps you prepare appropriate evidence for each dispute type.

Chargeback Costs and Thresholds

Direct Costs Per Chargeback

Chargeback fee: £15-£30 charged by your payment processor for handling dispute, regardless of outcome. Even if you win, fee isn’t refunded.

Transaction amount: Immediately withdrawn from your account. Returned only if you win dispute.

Original transaction fee: Lost (1.5-2.5% you already paid to process the sale).

Staff time: Hours spent gathering evidence, preparing response, communicating with processor.

Example cost breakdown:

£100 transaction disputed:

• Transaction amount withdrawn: £100
• Chargeback fee: £20
• Original transaction fee lost: £2 (if 2%)
• Staff time (2 hours at £15/hour): £30
• Total immediate cost: £152

If you win: Recover £100, still lose £52
If you lose: Lose entire £152

Chargeback Ratio Thresholds

Your chargeback ratio is calculated as:

(Number of chargebacks ÷ Total transactions) × 100

Standard merchant accounts:

• Safe zone: Under 0.5%
• Warning zone: 0.5-0.65%
• Excessive: Over 0.65%

High-risk merchant accounts:

• Safe zone: Under 1%
• Warning zone: 1-2%
• Excessive: Over 2%

Example calculation:

1,000 transactions in a month, 8 chargebacks:
(8 ÷ 1,000) × 100 = 0.8% chargeback ratio

Standard account: This is excessive (over 0.65%)
High-risk account: This is acceptable (under 2%)

Consequences of High Chargeback Ratios

0.5-0.75%:

• Warning letters from processor
• Required to submit action plan
• Increased monitoring

0.75-1%:

• Monthly chargeback monitoring fees (£50-£200)
• Transaction rate increases
• Rolling reserve implemented (5-10% held)
• Settlement delays (funds held longer)

Over 1%:

• Placed in chargeback monitoring program
• Significant fee increases
• 10-20% rolling reserve
• Account review, possible termination threatened

Over 2% or continued high ratios:

• Merchant account termination
• Placed on TMF/MATCH list (terminated merchant file)
• Difficulty obtaining new merchant account (5+ years)
• Forced to high-risk processors at premium rates

Preventing Chargebacks

Prevention is infinitely better than winning disputes. Most chargebacks are preventable through proper business practices.

Clear Business Policies

Transparent product descriptions:

• Accurate photos from multiple angles
• Detailed specifications (size, weight, materials, features)
• Clear condition statements (new, refurbished, used)
• Realistic expectations (don’t overpromise)

Visible refund and return policies:

• Link from every product page
• Include in order confirmation emails
• State clearly: timeframes, conditions, who pays return shipping
• Make process easy (reduces chargeback motivation)

Clear billing descriptors:

• Ensure merchant name on customer statements is recognizable
• If trading name differs from registered business name, customer should recognize it
• Include phone number in descriptor so customers can call before disputing
• Avoid generic descriptors like “Online Purchase” or “Payment”

Example good descriptor: “ACME WIDGETS 0121792537”
Bad descriptor: “ACME ENTERPRISES LTD” (if you trade as “Widgets Online”)

Terms and conditions acceptance:

• Require checkbox acceptance at checkout
• Keep records of acceptance (timestamp, IP address)
• Include key terms: no-refund clauses, subscription terms, delivery times

Robust Communication

Order confirmations:

• Send immediately after purchase
• Include full order details, amount charged, delivery timeline
• Provide customer service contact information
• Restate refund policy

Shipping confirmations:

• Send when order dispatches
• Include tracking information
• Provide expected delivery date
• Pre-empt “item not received” disputes

Delivery confirmations:

• Follow up after expected delivery date
• Ask customer to confirm receipt
• Request feedback on product/service
• Catch problems before they become chargebacks

Subscription reminders:

• Email 3-7 days before recurring charge
• Remind customer what they’re subscribed to
• Provide easy cancellation link
• Prevents “forgot I signed up” disputes

Excellent Customer Service

Respond quickly to complaints:

• Aim for same-day response to customer emails
• Answer phone promptly during business hours
• Don’t let complaints fester and escalate to chargebacks

Make refunds easy:

• Simple refund request process
• Process refunds within 3-5 days
• Don’t force customers to jump through hoops
• Easier refund process = fewer chargebacks

Resolve issues proactively:

• If shipment delayed, offer partial refund or discount without being asked
• If product defective, send replacement immediately
• Goodwill gestures prevent disputes

Track customer satisfaction:

• Post-purchase surveys
• Monitor review sites
• Address negative feedback immediately
• Unhappy customers are future chargebacks

Fraud Prevention

Address Verification System (AVS):

• Verify billing address matches card-issuing address
• Decline transactions with mismatched addresses
• Reduces fraud significantly

CVV verification:

• Always require 3-digit security code (4 digits for Amex)
• Proves customer has physical card
• Reduces card-not-present fraud

3D Secure (Verified by Visa, Mastercard SecureCode):

• Additional authentication layer for online purchases
• Customer enters password or SMS code
• Liability shifts to card issuer (you’re protected from fraud chargebacks)

Suspicious order flags:

Watch for and manually review orders with:

• High value from first-time customer
• Shipping address different from billing address (especially international)
• Multiple orders to same address using different cards
• Rushed shipping requested
• Email address domain doesn’t match location
• Free email providers for high-value purchases

IP address checking:

• Verify customer IP location matches stated location
• Multiple VPN/proxy indicators suggest fraud
• Geographic mismatch warrants verification call

Documentation Discipline

Keep comprehensive records:

For every transaction, retain for minimum 18 months:

• Order details (date, time, items, amount)
• Customer communication (emails, chat transcripts, call notes)
• Payment authorization codes
• AVS and CVV results
• IP address and device information
• Shipping tracking numbers
• Delivery confirmation (signature if obtained)
• Terms acceptance records
• Product photos/descriptions as shown to customer

Organize for quick retrieval:

• When chargeback arrives, you have 7-14 days to respond
• Scrambling for evidence wastes time and weakens response
• Tag transactions by order number for easy searching
• Use CRM or order management system that stores everything

Responding to Chargebacks

Despite best prevention efforts, chargebacks still occur. Proper response increases win rate significantly.

Immediate Actions When Notified

Note the deadline: Responses typically due 7-14 days from notification. Missing deadline = automatic loss.

Read reason code carefully: Understanding why customer disputed determines what evidence you need.

Assess whether to fight:

Fight if:

• You have strong evidence proving transaction legitimate
• Transaction value justifies time investment
• Chargeback is clearly fraudulent (friendly fraud)

Accept if:

• Customer has legitimate complaint you should have resolved
• Evidence is weak or missing
• Transaction value is very low (£10-20) and not worth effort
• You were clearly in wrong

Accepting chargebacks: Sometimes better to accept loss, issue refund, learn lesson, and focus on prevention. Fighting costs time and has no guarantee of success.

Building Your Response

Tailor evidence to reason code:

For fraud claims:

• AVS and CVV match results
• IP address and geolocation data
• Device fingerprint information
• Previous purchase history from this customer
• Delivery to billing address (not third-party)
• Signature at delivery if obtained

For “item not received”:

• Shipping tracking showing delivered
• Delivery confirmation (signature, photo, GPS)
• Customer communication after delivery (proves they received it)
• Terms stating delivery method and timeframe

For “not as described”:

• Product description as shown to customer at purchase
• Photos from your listing
• Customer communication showing they understood what they ordered
• Terms regarding product descriptions and returns
• Evidence product matched description (manufacturer specs, etc.)

For “credit not processed” (refund not given):

• Proof refund was processed (transaction ID, date)
• Bank statement showing refund sent
• Communication with customer about refund timeline
• If refund delayed, explanation why

For “cancelled subscription still billing”:

• Subscription terms agreed to
• Cancellation policy stating notice required
• Evidence cancellation request received after billing period started
• Communication explaining why charge legitimate

Response Letter Template

“` Chargeback Response – [Case Number] Transaction Details: – Date: [Transaction Date] – Amount: £[Amount] – Authorization Code: [Code] – Customer Name: [Name] – Order Number: [Order#] Reason Code: [Code and Description] Response: We are contesting this chargeback. The transaction was legitimate and authorized by the cardholder. [State your case clearly – 2-3 paragraphs explaining why chargeback should be reversed] Supporting Evidence: 1. Order Confirmation – Sent to customer’s email [email address] on [date] (Attachment 1) 2. Shipping Confirmation – Order shipped via [carrier] on [date], tracking number [number] (Attachment 2) 3. Delivery Confirmation – Package delivered on [date] at [time], signature obtained (Attachment 3) 4. Product Description – As shown to customer at time of purchase (Attachment 4) 5. Terms and Conditions – Accepted by customer at checkout (Attachment 5) 6. [Additional evidence specific to case] Conclusion: The cardholder received the product/service as described and agreed to the terms at time of purchase. The transaction was properly authorized and fulfilled. We respectfully request this chargeback be reversed. Merchant Signature: [Your signature] Date: [Date] “`

Evidence Submission Best Practices

Clear and organized:

• Label each piece of evidence clearly
• Use numbered exhibits matching your response letter
• Highlight key information (tracking numbers, delivery dates, signatures)

Comprehensive but concise:

• Include everything relevant, nothing irrelevant
• Don’t send 50 pages hoping something helps
• Banks review quickly – make your case obvious

Professional presentation:

• Use formal business language
• No emotional arguments or insults toward customer
• State facts, provide evidence, remain professional

Submit before deadline:

• Aim to submit 2-3 days early
• Allows time for technical issues
• Late submissions automatically rejected

Win Rates and Realistic Expectations

Industry average win rates:

• Fraud chargebacks: 20-30% merchant win rate (hard to prove legitimate)
• Item not received: 40-60% win rate if delivery proof strong
• Not as described: 30-40% win rate (subjective claims difficult)
• Friendly fraud (documented): 60-80% win rate with strong evidence

Factors affecting success:

Strength of evidence: Comprehensive, organized documentation significantly improves odds.

Card network: Visa and Mastercard have slightly different processes and standards. Some merchants find one easier than other.

Customer bank policies: Some banks automatically side with cardholders, making wins harder.

Transaction value: Banks may side with merchants more readily on low-value disputes to avoid processing costs.

Your chargeback history: Merchants with low historic chargeback ratios may receive more favorable treatment.

The Reality Check

Even with perfect evidence, you won’t win every chargeback. Customer banks are incentivized to protect their cardholders. Some disputes are unwinnable regardless of evidence.

Accept this reality:

• Focus on prevention (stops 80%+ of chargebacks)
• Fight only when evidence is strong
• Don’t waste time on obvious losses
• Maintain good chargeback ratio through prevention, not fighting

Fighting every chargeback wastes staff time and rarely achieves meaningful results. Better to prevent 10 chargebacks than fight 10 and win 3.

Industry-Specific Chargeback Challenges

E-commerce/Online Retail

Higher chargeback risk because:

• Card-not-present transactions (can’t verify cardholder)
• Shipping delays create “item not received” disputes
• Product photos may not match exact item received
• Easy for customers to claim fraud

Prevention tactics:

• Mandatory 3D Secure for high-value orders
• Detailed product photos and videos
• Robust tracking with signature confirmation
• Clear delivery timeframes prominently displayed
• Proactive shipping updates

Subscription Services

Higher chargeback risk because:

• Customers forget they signed up
• Free trials converting to paid catch customers off-guard
• Cancellation processes may be unclear
• Recurring charges appear unexpected

Prevention tactics:

• Email 3-5 days before each recurring charge
• Very clear subscription terms at signup
• Easy cancellation (one-click if possible)
• Grace period for accidental renewals
• Clear billing descriptor including “SUBSCRIPTION”

Digital Products/Services

Higher chargeback risk because:

• No physical delivery proof
• Easy for customers to download and claim non-receipt
• Difficult to prevent use after chargeback
• “Changed my mind” disputes common

Prevention tactics:

• Log all downloads (IP, timestamp, file accessed)
• Email download links creating paper trail
• Clear no-refund policy (digital goods exemption in UK)
• Watermark or personalize digital products to customer
• Usage tracking showing customer accessed product

High-Ticket Items

Higher chargeback risk because:

• Large disputes financially motivated
• Buyer’s remorse more common
• Customers may try to keep item and get refund
• Fraud more profitable for criminals

Prevention tactics:

• Phone verification before fulfilling high-value orders
• Video unboxing/inspection before shipping
• Insurance and signature required at delivery
• Detailed terms about high-value purchases
• Build relationship with customer before fulfilling

Advanced Chargeback Management Strategies

Chargeback Alerts

Services like Ethoca and Verifi:

Provide early warning before chargebacks filed officially:

• You receive notification when dispute initiated but before formal chargeback
• You have 24-72 hours to issue refund
• If you refund immediately, chargeback doesn’t proceed
• Saves chargeback fee (£15-30)
• Doesn’t count toward chargeback ratio

Costs: £10-15 per alert plus £50-200 monthly subscription

Worth it if: You receive 5+ chargebacks monthly. Savings on fees and ratio protection justify cost.

Representment Services

Third-party services that handle chargeback responses for you:

• You provide access to order data
• They gather evidence and submit responses
• You pay per chargeback or percentage of recovered amounts

Pros:

• Saves staff time
• Professional responses potentially higher win rate
• They track deadlines and ensure timely submission

Cons:

• Costs £15-40 per chargeback handled
• You still need organized records for them to access
• May not understand your business as well as you do

Worth it if: You handle 20+ chargebacks monthly and staff time is better spent elsewhere.

Chargeback Insurance

Specialized insurance covering chargeback losses:

• You pay monthly premium based on processing volume
• Insurer covers chargeback amounts (you still pay fees)
• Often includes fraud screening tools

Typical cost: 0.5-1% of monthly processing volume

Worth it if: Operating in very high chargeback-risk industry where even with best practices, ratios stay elevated.

What to Do If Chargebacks Threaten Your Account

If your chargeback ratio climbs into warning/excessive territory:

Immediate Actions

Contact your processor proactively:

• Don’t wait for them to contact you
• Explain situation and steps you’re taking
• Shows you take it seriously

Submit action plan:

• Detail why ratio increased (new product launch, seasonal spike, fraud attack)
• Outline prevention measures you’re implementing
• Set target ratio and timeline to achieve it
• Request 30-60 days to demonstrate improvement

Example action plan elements:

• Implementing 3D Secure on all transactions
• Adding delivery signature requirement
• Improving product descriptions to reduce “not as described”
• Hiring additional customer service to respond faster to complaints
• Subscribing to chargeback alert service

Long-term Solutions

Analyze chargeback patterns:

• Which products generate most chargebacks? (Consider discontinuing)
• Which reason codes appear most? (Target prevention there)
• Which customer segments dispute most? (Screen more carefully)
• When do chargebacks spike? (Seasonal, promotional periods)

Improve weakest areas:

• If “item not received” is common: Upgrade shipping, add tracking
• If fraud is common: Strengthen verification, block risky countries
• If “not as described”: Improve descriptions, add more photos/videos
• If subscription-related: Better reminder emails, easier cancellation

Consider business model changes:

• Require phone orders for high-value items (not just online)
• Implement deposit system (harder to dispute deposit + balance)
• Move high-risk products to different merchant account
• Switch from card payments to bank transfers for certain customers

Reference Data

For comprehensive UK payment processing costs, timelines, and provider comparisons, view our complete UK payment processing data reference guide.

How We Tranxact Helps with Chargeback Management

High chargeback ratios can threaten your merchant account. We help UK businesses:

• Find chargeback-tolerant providers: If your ratio is elevated, we connect you with processors accepting higher ratios
• Review prevention strategies: We analyze your business and suggest practical chargeback reduction tactics
• Structure merchant accounts: Split high-risk products to separate accounts protecting your main processing
• Negotiate rolling reserves: If reserves are required, we help negotiate favorable terms
• Account rescue: If threatened with termination, we help find alternative providers quickly

Our consultancy is provided free to businesses – we’re compensated by providers when we refer customers, keeping our advice independent.

Chargeback Management – Frequently Asked Questions

What is a chargeback and how is it different from a refund?

A chargeback is when a customer disputes a card payment with their bank, forcing reversal without your consent. Unlike refunds which you control voluntarily, chargebacks are initiated by customers through banks, charge you £15-£30 fees regardless of outcome, count toward your chargeback ratio, and can threaten your merchant account if ratios exceed thresholds. Refunds cost no fees and don’t count toward ratios.

What is an acceptable chargeback ratio?

Standard merchant accounts should maintain chargeback ratios below 0.65% (under 0.5% is safest). High-risk accounts have higher tolerance, typically below 2%. Ratios calculated as: (number of chargebacks ÷ total transactions) × 100. Exceeding thresholds results in warnings, increased fees, rolling reserves, or account termination.

How long do I have to respond to a chargeback?

Response deadlines are typically 7-14 days from notification date (varies by card network and processor). Missing the deadline results in automatic loss. Submit responses 2-3 days early when possible to account for technical issues. Late submissions are rejected regardless of evidence strength.

What happens if I lose a chargeback?

If you lose, the transaction amount remains with the customer (already withdrawn when chargeback filed), you keep the chargeback fee (£15-30), you lost the original transaction fee (1.5-2.5%), and the chargeback counts toward your ratio. Multiple losses increase ratio potentially triggering warnings, fees, or account reviews.

Can I prevent chargebacks completely?

No, but you can reduce them by 80-90% through: clear product descriptions and policies, excellent customer service resolving complaints quickly, fraud prevention (AVS, CVV, 3D Secure), detailed record-keeping, proactive communication (order confirmations, shipping updates), and making refunds easy so customers don’t resort to chargebacks.

What is friendly fraud?

Friendly fraud is when customers dispute legitimate transactions intentionally (to keep product and money) or through confusion (forgot purchase, don’t recognize merchant name, family member used card). Accounts for 60-80% of chargebacks. Preventable through clear billing descriptors, transaction confirmation emails, and good customer communication.

How do I win a chargeback dispute?

To win chargebacks: respond before deadline with comprehensive evidence tailored to reason code (fraud claims need AVS/CVV data, item not received needs delivery tracking, not as described needs product photos and descriptions), organize evidence clearly with numbered exhibits, write professional response letter stating facts without emotion, and provide proof customer received what they paid for and agreed to terms.

What evidence do I need to win chargebacks?

Essential evidence includes: order confirmation showing what customer purchased, payment authorization code, AVS and CVV verification results, shipping tracking with delivery confirmation, proof of delivery (signature if obtained), product descriptions as shown to customer, terms and conditions acceptance record, and customer communications. Specific evidence needed varies by chargeback reason code.

What happens if my chargeback ratio gets too high?

High ratios trigger escalating consequences: 0.5-0.75% brings warning letters and monitoring, 0.75-1% adds monthly fees (£50-200) and rolling reserves (5-10% held), over 1% brings significant fee increases and 10-20% reserves, over 2% or continued high ratios risks account termination and placement on terminated merchant file (MATCH list) making new accounts difficult for 5+ years.

Should I fight every chargeback?

No. Fight chargebacks only when: you have strong evidence, transaction value justifies time investment, and chargeback is clearly friendly fraud. Accept chargebacks when: customer has legitimate complaint, evidence is weak or missing, transaction value is very low, or you were clearly wrong. Fighting wastes time with no guarantee of success. Focus on prevention instead.

Related Payment Processing Guides

• Merchant Account Fees Explained
• High-Risk Merchant Account Costs
• How to Get a Merchant Account UK
• Virtual Terminal UK Guide
• Payment Processing Glossary

UK Payment Industry Resources

• UK Finance – Payment Standards
• Financial Conduct Authority – Payment Services
• Visa Chargeback Rules
• Mastercard Chargeback Guide

Protect Your Merchant Account from Chargebacks

High chargeback ratios threatening your merchant account? We help UK businesses implement effective chargeback prevention strategies and find providers with appropriate risk tolerance.