Chargebacks can seriously harm the bottom line and cause friction along the customer journey. Differentiating the different types can already help prevent or at least reduce chargebacks.
Summary: How to reduce chargebacks #
- Provide detailed product descriptions
- Let your customers track deliveries
- Optimize the payments process with automation
- Use real-time fraud detection for early intervention
- Make use of risk filters to reduce fraud
- Add secure authentication methods (starting with free trials and membership registrations)
Chargebacks are increasing #
According to a 2025 survey of finance issuers and merchants by Mastercard, chargebacks have increased by 10% in the last year.
Chargeback benchmarks #
Average chargeback value per industry:
- Travel & hospitality: 110€
- Retail: 71€
- Digital goods: 65€
- Subscription services: 59€
- High-risk categories*: 84€
*High-risk merchants are merchants with a very high chargeback rate. This includes industries such as gambling, dating services, pharmacies, etc.
The average chargeback rate across industries is usually set at 0,6%. However, some industries have higher or lower rates.
According to Clearly Payments, experience-based services such as education & training, travel and health & wellness have much higher chargeback rates than SaaS, media & entertainment or retail.
A chargeback rate over 1% can automatically raise the alarms with your payment provider and/or acquirer and put you in the “high-risk”-segment which can cause issues with your acquirer agreements.
Average chargeback benchmarks across industries
- Education & training (1,02%)
- Travel (0,89%)
- Health & wellness (0,86%)
- Gaming (0,83%)
- SaaS (0,66%)
- Media & entertainment (0,56%)
- Financial services (0,55%)
- Retail (0,52%)
What is the difference between a chargeback and a refund? #
If the consumer contacts the card issuing bank and requests the bank to reverse the transaction from the merchant’s bank, it’s a chargeback. If the consumer contacts the merchant and the merchant returns the money to the customer, it’s a refund.
What are the different chargeback types? #
There are different types of chargeback that require different measures: first-party fraud, third-party fraud, non-fraud and low-dollar write-offs.
Not every chargeback is fraudulent and/or should be escalated. Since chargebacks are also a potentially stressful experience for your customers, you need to be careful how to deal with each type as not to destroy customer relationships.
(The following numbers are taken from the Mastercard report)
First-party fraud (21% of all surveyed cases)
An individual knowingly misrepresents their identity or manipulate their accounts. This might happen when a person creates multiple accounts under different emails to get a free subscription trial. Another case could be a family member making a purchase with the customer’s account without their knowing.
Third-party fraud (25%)
Third-party fraud happens when a credit card gets stolen or a bad actor hacks into someone’s account to purchase products.
Non-fraud (38%)
When a customer has purchased something with the clear intention of using / keeping the product or service but later asks for a chargeback. Reasons can differ:
- Late (or no) shipment,
- Product doesn’t fit or doesn’t work,
- The customer is in another way dissatisfied with the purchase and makes use of their legal right to return the product or cancel their subscription.
Low-dollar write-off (16%)
Low-dollar write-offs happen when a chargeback case is either too much trouble and/or the product value is too low to contest it. Big retail players such as Amazon have this embedded in their customer service flows to keep customers happy and reduce the number of resources required to handle these disputes.
From dispute to chargeback #
- A customer disputes a transaction and requests a chargeback
- Optional: the merchant has a limited time window to proof that the chargeback should not be granted (proof of delivery, cardholder signature, etc.). This is called “representment”.
- a. If the representment goes through, the chargeback is denied.
- b. If the representment doesn’t go through, the chargeback goes through and the customer gets their money back
- c. If a merchant does not opt for a representment (e.g. as a low-dollar write-off), the chargeback goes through and the customer gets their money back
- A very small number of chargebacks goes to so-called “arbitration”, where a third-party will be involved to solve the dispute.
On average, about 50% of merchants win their representments.
Your offered payment methods have an impact on your chargeback #
The payment methods you offer in your checkout have a big impact on conversions but should also be selected wisely based on their fees and their chargeback policies. Additionally, some payment methods charge additionally for each chargeback, so make sure you’re aware of the costs.
The payment method can also affect the chargeback window a customer has. For example, customers who pay with SEPA Direct Debit can request a chargeback with no questions asked up to 8 weeks from the purchase date.
How can Frisbii help your business close revenue leaks? And what payment methods work best for your market and business model? Meet with our experts and find out.
How do you reduce chargebacks? #
Given that non-fraud chargebacks make up the biggest slice of the chargeback pie, identifying the reasons why customers disputed their purchases can be a great way to reduce that number and save costs.
Fraud-prevention is another weapon to fight chargebacks and make sure that your customers feel secure when dealing with your business.
How to reduce non-fraud chargebacks
Offer detailed product descriptions that provide all necessary information. This includes size guides for clothing, technical specs for hardware and software, materials or ingredients as well as information about the correct use and application of the products.
Realistic shipping information, ideally with delivery tracking can reduce the number of chargebacks due to late or lost deliveries. Documentation will also help you potentially get your money back if you had to grant a chargeback because the delivery service lost the package or delivered it too late.
Make sure to pack your products carefully to avoid broken products.
Use a recognizable descriptor. The text on the customers invoice is called the “descriptor”. Customers might accidentally engage in “friendly fraud” if your descriptor is not your brand name, thinking this was a faulty or even fraudulent transaction. Use a name that appears on your website (your business/brand name), rather than your legal name.
Reduce buyer’s remorse (e.g. the customer has received the product and now regrets buying it) is a typical phenomenon and can be hard to tackle. However, there have been studies that indicate that you can reduce buyer’s remorse by highlighting the outcome/experience of the product vs. the functionality.
Implement payment return options for low purchases to reduce disputes and therefore the overall chargeback rate.
Introduce automatic detection of double-charges. A double-charge can happen when a customer thinks their first payment did not go through – often because the checkout process is confusing or the website broke down – and tried it again.
Ensure that any payment authorization does not expire by submitting transactions for processing as soon as possible.
How to reduce fraudulent chargebacks
Avoid multiple free trial or discount registrations with different email accounts by asking information that is harder to fake (e.g. address, credit card information).
Use risk filters that can spot suspicious behavior and automatically filter it out of the standard purchase process.
Use 2-factor-authentication to make it more difficult for hackers to get access to customer accounts.
A reliable payment gateway can actively support you in reducing chargebacks and additionally ensuring a smooth checkout (which can reduce friction in the customer experience and thus reduce buyer’s remorse).
Try out the Frisbii payment gateway for free to see how easily it handles payments and how it helps you optimize your checkout.
