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Understanding and addressing eCommerce fraud is essential for safeguarding your online business against significant financial losses. According to a recent Mastercard study, global losses from online payment fraud could surpass $343 billion by 2027.

A comprehensive understanding of fraud and preparing your eCommerce store is crucial to safeguard against lost sales and revenue reduction. Learn more about fraud, chargebacks, fraud protection, and everything you need to know to protect your business from eCommerce fraud. 

What are credit card chargebacks?

Credit card chargebacks occur when customers challenge a transaction charged to their credit card. This process involves the company responsible for the transaction refunding the purchase amount back to the disputing customer. Customers often initiate chargebacks for various reasons, such as unauthorized transactions, dissatisfaction with a product, or incorrect charge amounts. These chargebacks result in lost revenue for businesses, as they lose revenue from the product and incur additional costs in terms of time and resources. 

eCommerce Chargeback Process

The eCommerce chargeback process involves multiple parties and is a complex, multi-step from start to finish. These parties include the customer, the retailer, the card issuer, and the bank. Check out this comprehensive overview of the complete chargeback process.

  • Initiation: The customer reports an initial purchase dispute to their bank or card issuer, providing the reason for the dispute.
  • Issuer Review: The card issuer or bank reviews the claim and forwards valid claims to the merchant for review.
  • Business Notification: The merchant is notified of the chargeback claim and begins the review process.
  • Response: The business evaluates the claim's validity, gathers relevant facts and evidence, and determines its legitimacy.
  • Decision: The retailer decides whether to accept or reject the disputed claim based on collected information.

Chargeback Fraud Examples

There are three main types of chargeback fraud.

  • Criminal Fraud: Occurs when criminal activity is committed on behalf of the buyer. Examples include using a stolen credit card to make purchases or disputing a valid transaction to avoid payment.
  • Friendly Fraud: This type of fraud happens unintentionally without malicious intent. Friendly fraud examples include customers disputing a transaction because they do not recognize it on their statement, forgetting about a purchase, or a family member/friend making a purchase without the cardholder's consent.
  • Merchant/Business Error: This type of chargeback stems from errors made on behalf of the merchant. Examples include charging the wrong amount, double-charging for a product, or delivering a product that does not match its description or meet customer expectations.

The Merchant Fraud Journal highlights additional instances of chargeback fraud that eCommerce merchants should be aware of

  • Card Not Present (CNP) Fraud: Occurs when a fraudulent user makes an online purchase using stolen credit card information without physically presenting the card for payment.
  • Authorized User Fraud: Involves someone who knows the legitimate cardholder using that card to make a purchase, either with or without the cardholder's permission.
  • Buyer Remorse: The purchaser disputes a transaction due to regret or a change of mind, claiming they lack knowledge of the purchasing process.

However, it’s important to note that not all chargebacks are considered fraudulent, especially when they fall into these three categories.

  • Customer Confusion: The customer makes a chargeback after forgetting they made a purchase or not recognizing a product or company on their statement
  • Poor Customer Experience: The product delivered does not live up to customer expectations
  • Family Fraud: The purchase was made by a friend or family member without the cardholder’s knowledge or consent

Awareness of these scenarios helps merchants distinguish between legitimate and fraudulent chargebacks. This allows them to better address and prevent fraudulent activities while improving customer satisfaction and retention.

The True Cost of Chargeback Fees

Chargeback protection puts safeguards in place to diminish losses in your eCommerce venture. Handling chargeback disputes can be complex and time-consuming. Investing in a reliable chargeback protection provider can mitigate liabilities and streamline the dispute resolution process for your business.

Resolving disputes requires merchants to furnish compelling evidence and documentation to support their case. These documents typically include:

  • Proof of delivery
  • A clear copy of your policy
  • Detailed product information
  • Confirmation of product pickup or return
  • Proof of customer communication related to the transaction

Chargebacks result in refunding the product price and incurring additional costs for retailers. Besides refunding the product price, credit card processors charge eCommerce retailers a transaction fee. They also face a chargeback fee the bank imposes once a dispute claim is initiated. Internally, retailers bear operational and marketing expenses associated with processing the sale and handling returns after a chargeback occurs.

A high chargeback rate can pose significant risks to eCommerce businesses. Companies with a consistently high chargeback rate may be enrolled in a chargeback monitoring program. They could be restricted or prohibited from accepting credit card payments for their goods and services. Implementing robust chargeback protection measures is crucial to safeguarding your business against such risks and maintaining healthy financial operations.

Prevent eCommerce Chargebacks

eCommerce retailers can adopt various strategies to safeguard their business and reduce the occurrence of chargebacks. Here are some tactics to help mitigate the risk of fraud and chargebacks.

  1. Clear and Transparent Product Descriptions: Ensure your product descriptions are accurate and comprehensive. Transparent information helps set clear customer expectations, reducing the likelihood of disputes.
  2. Establish Clear Company Policies: Create and publicly share transparent policies regarding refunds, returns, shipping, and customer disputes. Clearly communicated policies help avoid misunderstandings and disputes.
  3. Provide Exceptional Customer Service: Offer prompt and helpful customer support to address inquiries, resolve issues, and assist throughout purchasing. Good customer service can prevent misunderstandings that may lead to chargebacks.
  4. Implement Order Confirmations and Updates: Customers should receive order confirmation emails or messages upon successful order placement. Provide regular updates on order status, shipment tracking, and delivery confirmation to keep customers informed and reduce anxiety-related chargebacks.
  5. Use a Secure Payment Gateway: Process transactions using a reputable and secure payment gateway. Secure payment methods inspire customer trust and help prevent fraudulent activities.
  6. Require Card Verification: Implement card verification methods such as CVV checks to ensure that customers have physical possession of the payment card used for transactions, reducing the risk of fraudulent purchases.
  7. Regularly Monitor Transactions: Monitor transactions for suspicious activities, unusual patterns, or high-risk indicators. Promptly investigate and take action on potentially fraudulent transactions to prevent chargebacks.
  8. Utilize Chargeback Management Tools and Fraud Protection Partners: Invest in chargeback management tools and collaborate with fraud protection technology partners to proactively identify and mitigate fraudulent activities. These tools can help prevent chargebacks and protect your business from financial losses.

By implementing these proactive strategies, eCommerce retailers can enhance fraud prevention measures, reduce chargeback rates, and ensure a positive shopping experience for customers.

eCommerce Chargeback System Must-Haves

When selecting a chargeback system for your eCommerce business, it's important to consider several key features that can help minimize losses and enhance security for your customers and your business. Here are some essential features to look for:

  1. Fraud Detection: A robust chargeback system should include advanced fraud detection capabilities to identify and flag potentially fraudulent transactions before they result in chargebacks.
  2. Address Verification Service (AVS): AVS checks to verify that the billing address provided by the customer matches the address on file with the credit card issuer, helping to reduce fraud risk.
  3. Credit Card Verification: This feature ensures that customers provide the correct CVV (Card Verification Value) or CVC (Card Verification Code) during transactions, adding an extra layer of security against unauthorized card usage.
  4. Blacklist: The system should allow you to maintain a blacklist of known fraudulent users, email addresses, or IP addresses to prevent them from making purchases on your platform.
  5. Workflow Management: Effective workflow management tools enable you to streamline and automate chargeback handling processes, reducing manual errors and response times.
  6. Chargeback Notification and Analysis: The system should provide timely notifications of chargebacks and offer detailed analysis and reporting capabilities. This helps you understand the root causes of chargebacks and implement preventive measures.

By leveraging these features in your selected chargeback system, you can proactively mitigate fraud risks, improve transaction security, streamline operations, and protect your eCommerce business from financial losses due to chargebacks.

Chargeback Protection Benefits

Each granted claim dispute can incur costs ranging from $25 to $100 per claim for eCommerce merchants, contributing to an annual cost of $125 million in chargebacks for eCommerce businesses. Over the past three years, approximately 80% of eCommerce retailers have encountered friendly fraud, making it the top online fraud attack. Investigating disputes can take 30 to 90 days for businesses to resolve independently. Without chargeback protection, merchants are responsible for managing this process alone.

Implementing chargeback protection shields retailers from losses stemming from fraudulent chargeback disputes. These services offer proactive fraud identification and prevention and swift response mechanisms for addressing errors. eCommerce chargeback protection services are equipped to effectively challenge dispute claims, alleviate businesses' liability, and safeguard their financial well-being.

Protecting Yourself From Fraud

Minimizing losses due to fraud and chargebacks requires proactive measures within your organization. Equipping your team with the necessary skills to effectively manage disputes and maintain proactive communication with customers to reduce risks is essential. Training your team to de-escalate dispute situations can increase the number of issues resolved amicably.

In addition to internal preparations, investing in technology with robust identity verification and risk assessment tools is crucial for preventing fraud before it occurs. Partnering with an experienced fraud protection technology provider can offer valuable expertise and support in safeguarding your eCommerce business.

ClearSale and Smart Solutions

Meet ClearSale, a trusted Smart Solutions technology partner. ClearSale is a global leader in eCommerce fraud solutions and is trusted by 6000+ companies worldwide, including Under Armour, Office Depot, and Pepsico. They offer 24/7 fraud protection and support to eCommerce businesses of all sizes. ClearSale takes a multilayered approach to stopping fraud, increasing revenue, and providing an excellent customer experience. Their comprehensive fraud protection services, expertise in manual review processes, and advanced technologies make them a trusted partner for businesses looking to safeguard their operations and revenue from online fraud and chargebacks.


Credit card chargeback fraud poses significant risks to eCommerce merchants, leading to various negative consequences such as operational costs, higher processing fees, damage to reputation, loss of merchandise, disruption in payment processing, and financial losses.

To mitigate these risks effectively, eCommerce merchants must partner with a reputable eCommerce agency and a trusted fraud protection partner. These partners can provide essential guidance and solutions tailored to your business needs.

Let Smart Solutions and ClearSale find the right chargeback and fraud protection solution for your eCommerce business.