How to prevent chargebacks and protect your revenue

Key takeaways

• Chargebacks are there to protect consumers, but friendly fraud makes up up to 80% of disputes, and that hits your revenue directly.

• Preventing them comes down to a mix of clear communication, fraud detection tools, and responsive customer service.

• Airwallex helps you prevent chargebacks with AI-powered fraud detection, pre-chargeback programmes, and unified dispute management in a single dashboard.

Chargebacks are meant to protect consumers from fraud, but sometimes customers use them to avoid returns or fix issues that a quick conversation could have solved. Global chargeback volume could reach 337 million by 2026, a 42% increase from 2023¹, which makes it harder for businesses to protect their revenue from fraud and chargeback fees.

Knowing how to prevent chargebacks can help you keep customers happy while also protecting your bottom line.

In this article, we'll walk through nine proven ways to reduce chargebacks and protect your revenue, and how Airwallex can help you take a proactive approach to fraud prevention and chargeback management.

What are chargebacks?

Chargebacks are disputed card payments. When someone starts a chargeback, the card issuer investigates the claim, and if the dispute is valid, the issuer refunds the customer and charges the merchant a fee.

Chargebacks protect consumers from fraudulent transactions, transaction errors, goods or services that never arrived, or unethical business behaviour, like shipping low-quality products that don't match their descriptions.

But cardholders can misuse that protection, and that can hurt your profit margin fast. In fact, "friendly fraud" accounts for 80% of chargebacks². That often happens when a customer disputes a charge to avoid a return, claims fraud without evidence, or just regrets the purchase.

For merchants, that can mean more scrutiny from credit card companies, higher processing fees, chargeback fees, and financial losses from both the transaction cost and the product or service you already provided. The cost of friendly fraud can add up quickly, hurting both your revenue and your relationship with payment processors.

One thing that often causes confusion is the difference between a chargeback and a refund. They're not the same thing.

Chargebacks vs. refunds: What's the difference?

Think of a refund like taking a shirt back to the shop and getting your money back at the counter. A chargeback is more like calling your bank and saying the shop charged you unfairly, and then the bank takes the money back for you. One is a conversation. The other is a dispute.

Here's how they compare:

• Who initiates it: You issue a refund voluntarily. A chargeback is filed by the customer through their card issuer, without your involvement.

• Fees involved: Refunds cost you the transaction amount. Chargebacks cost you the transaction amount plus a chargeback fee, typically £15–£75.

• Impact on your merchant account: Refunds don't affect your standing. Too many chargebacks can trigger monitoring programmes, higher processing fees, or account termination.

• Resolution timeline: Refunds are immediate. Chargebacks can take weeks to resolve, and you have to gather evidence and respond to the dispute.

If customers can get refunds easily, they're much less likely to file chargebacks. Making your return process simple isn't just good customer service. It's chargeback prevention.

The real cost of chargebacks

Chargebacks cost more than the amount of the disputed transaction. Say you sell a £50 product. If a customer files a chargeback, you don't just lose the £50 sale. You also lose the product, pay a chargeback fee, usually £15–£75, spend staff time gathering evidence and responding, and if it happens often enough, your payment processor may raise your rates or stop working with you entirely.

The time and money add up quickly. This is becoming a bigger concern because 27% of businesses said chargeback rates had increased in 2022³, and estimates suggest that trend will continue.⁴

Some chargebacks are unavoidable, but the bigger issue is when you keep seeing high dispute rates. High chargeback rates bring extra fees and can damage your relationship with financial partners, including your bank, acquirer, and other services.

What a single chargeback actually costs you

Here's what one chargeback on a £50 product might really cost you:

• Product cost: £50 (you've already shipped it and won't get it back)

• Refunded transaction: £50 returned to the customer

• Chargeback fee: £15–£75 charged by your payment processor

• Staff time: 30–60 minutes gathering evidence and submitting a response

• Potential rate increase: If your chargeback ratio goes up, processors may increase your fees

Total cost? Anywhere from £80 to £130 or more for a single £50 sale. Multiply that by dozens of disputes, and it's easy to see the impact on your margins.

What are chargeback ratio thresholds and network penalties?

Visa and Mastercard set chargeback ratio thresholds, usually 0.9% to 1.0% of your total transactions, along with minimum dispute counts, usually 100 disputes per month. If you go over both thresholds, you'll be enrolled in a monitoring programme like Visa's Dispute Monitoring Programme or Mastercard's Excessive Chargeback Programme.

These programmes require you to track and report data, including:

• Reasons consumers initiated a chargeback

• The rate of chargebacks as part of total sales

• Separate insights on card-present and card-not-present chargebacks

If your ratios stay high, the consequences get more serious: remediation plans, monthly fines, increased processing fees, and in severe cases, account termination. Your acquirer will work with you to figure out why your chargeback rates are so high and put together a plan to reduce them, but it's much better to stay below the threshold in the first place.

The good news is that a mix of strong operational practices and the right payment setup can cut chargebacks significantly. Here's how.

How to prevent chargebacks

You can't get rid of chargebacks entirely, and you wouldn't want to because they protect consumers. But you can reduce fraudulent disputes and the fees and time that come with them.

1. Use fraud detection tools and strong authentication

The first step is reducing fraud so customers don't need to file chargebacks in the first place. Several tools can work together to check that the person making a purchase is the real cardholder:

• Address Verification System (AVS): This compares the billing address entered at checkout with the address the card issuer has on file. If they don't match, it can flag a potentially fraudulent transaction before it's processed.

• CVV verification: This requires the three- or four-digit security code on the card. Because that code isn't stored in most databases, it helps confirm that the buyer has the physical card.

• 3D Secure (3DS): This triggers two-factor authentication for higher-risk transactions. The key benefit is this: if a customer passes 3D Secure verification and later claims fraud, the liability shifts to the card issuer, not you.

• AI-powered fraud detection: This analyses transaction patterns in real time to identify and block suspicious activity before it turns into a chargeback.

• PCI DSS compliance: Meeting Payment Card Industry Data Security Standards is the baseline for protecting cardholder data. It won't stop chargebacks directly, but a data breach will certainly cause them.

These tools work best together. AVS and CVV catch basic mismatches, 3DS adds another layer of verification, and AI-powered detection can spot patterns that individual checks might miss.

2. Accept digital wallets and tokenised payments

Apple Pay, Google Pay, and similar digital wallets use payment tokenisation to replace real card numbers with unique device-level codes that protect your actual card details. Each transaction also creates a one-time cryptogram, which means intercepted data can't be reused for future purchases. Think of it like giving a shop a one-time voucher instead of your actual bank card. Even if someone intercepts the voucher, they still can't use it again.

This matters because card-not-present fraud is the main cause of chargebacks in ecommerce. When customers pay with digital wallets, their real card details never touch your system, which sharply reduces the risk of fraudulent transactions and the chargebacks that come after them.

3. Write clear return, refund, and cancellation policies

Some consumers see chargebacks as an easy way to get a refund without the hassle of a return, which is one form of friendly fraud. Clear return, refund, and cancellation policies can help you deal with that.

Spell out your policies clearly throughout checkout and ask customers to confirm them. Then reinforce them in post-purchase emails so everything stays transparent. Make returns and refunds simple and easy to access. When customers struggle to get support or face high return fees, chargebacks become more appealing.

It might sound counterintuitive, but making returns easy can cost less than losing the sale or managing a dispute. Smooth returns also improve your overall customer experience and lower the chance of chargebacks.

4. Write detailed, accurate product descriptions

A fair number of chargebacks happen because the product doesn't match the description or doesn't meet customer expectations.¹ Accurate and detailed product descriptions help customers make confident, informed purchase decisions, which can reduce your chargebacks.

Customers are less likely to dispute charges when they get what they expected. Product descriptions can also help increase sales by supporting purchase decisions better. On top of that, well-written copy can improve a search engine's understanding of your product, which increases your visibility in search results.

5. Confirm orders and share shipping details

A common reason for chargebacks is confusion about missing items, and clear communication can usually prevent that. In an ideal situation, customers would ask for a refund or replacement, but unclear shipping expectations, delayed order fulfilment, or poor documentation often push them towards disputes instead.

Set clear expectations for when a product or service will arrive by communicating order fulfilment timelines and shipping estimates. Confirmation emails and updates throughout the shipping process also keep customers informed, so include key details like:

• Order tracking number for shipping updates from the carrier

• Billing and shipping address confirmation so customers can catch any mistakes before you ship

• Refund and return policies so customers can work with you to correct missing or incorrect orders

6. Use recognisable billing descriptors

Some chargebacks happen because of simple misunderstandings. Companies may have multiple names and acronyms, or they may use a parent company name for certain accounts and processes. There can be several reasons for that, but inconsistent branding can confuse customers and lead to chargebacks.

Let's say a customer checks their bank statement and sees a charge from "MCD Holding", a company name they don't recognise. Here are two ways that could play out:

• The customer remembers buying lunch at McDonald's, and the charge matched what the meal cost. They realise that "MCD Holding" is the parent company for the restaurant they visited.

• The customer doesn't recognise the charge and has never heard of "MCD Holding." They're concerned it's fraud and that their data has been compromised, so they contact their financial institution and file a dispute.

You can't control customer behaviour, but you can control your branding and communication by focusing on clarity. If customers know you by one business name and brand, use that same name in all customer communications to reduce confusion and concern. Check how your business name appears on a customer's bank statement. If it isn't immediately recognisable, update your billing descriptor through your payment provider.

7. Focus on responsive customer service

Accessible, helpful customer service channels encourage consumers to contact you about concerns instead of disputing a transaction. A lot of chargebacks happen because of issues you can resolve easily, like missing or incorrect items.

Most customers will follow the right steps if they know how to reach you and can get help quickly. With chatbot tools for 24/7 support and multiple live support options across email, phone, and text, good support is easier than ever to offer.

Good support catches issues after purchase, but you can also prevent confusion before it starts, especially if you're selling internationally.

8. Reduce cross-border chargeback risk

Cross-border transactions have higher chargeback rates for a few reasons: currency confusion, where customers don't recognise the charge amount in another currency; longer shipping times, which lead to "item not received" disputes; and unfamiliar billing descriptors from foreign entities.

A UK customer who sees a charge of US$47.50 instead of £38 may not recognise it and could file a dispute. Billing in their local currency removes that confusion.

To reduce cross-border chargeback risk:

• Bill customers in their local currency whenever possible

• Set clear international shipping expectations, including realistic delivery windows

• Use local acquiring where available to make sure billing descriptors appear familiar

If you're selling internationally, your payment setup matters just as much as your policies.

9. Choose a payment provider that helps you manage disputes

If you offer multiple payment methods, dealing with chargebacks can get complicated fast. Different methods can have different procedures for handling chargebacks, and that makes managing and responding to them harder.

Some payment providers give you a single dashboard for managing disputes across all your payment methods. That makes it easier to track and respond to disputes in one place. The system can also auto-generate responses to common dispute types, which saves time and effort.

Look for a provider that offers pre-chargeback alert programmes. These notify you about disputes before they turn into full chargebacks, which gives you a chance to resolve the issue directly with the customer. It may not stop chargebacks entirely, but it can reduce the overall financial impact.

The right provider doesn't just process payments. They help you prevent and manage disputes before they hit your bottom line.

How Airwallex helps you prevent chargebacks

Chargebacks are meant to protect customers from fraud, but they can also give businesses useful insight. By analysing chargeback trends, you can spot where to improve customer service, refine your refund policies, and improve product quality, which helps build customer trust while reducing disputes.

We take a proactive approach to fraud prevention and chargeback management:

• AI-powered fraud detection: Our systems identify and block suspicious transactions in real time, so fewer fraudulent charges reach your account.

• Pre-chargeback programmes: We support pre-chargeback programmes like Visa Rapid Dispute Resolution and Mastercard Collaboration, helping you resolve disputes before they turn into full chargebacks.

• Unified dispute management: Manage disputes across all your payment methods from a single dashboard, with auto-generated responses for common dispute types.

• Multi-currency billing and local acquiring: Bill customers in their local currency across 35+ markets, which reduces the confusion that leads to cross-border chargebacks.

• 3DS logic: Our 3DS implementation balances security and conversion, triggering extra verification only when risk signals justify it.

When you combine chargeback prevention strategies with our fraud detection and dispute resolution tools, you can reduce risk, save time, and protect your revenue.

Frequently asked questions

What are the three types of chargebacks?

The three types are merchant error, like billing a customer twice, criminal fraud, like using a stolen card, and friendly fraud, like disputing a charge instead of asking for a return. Understanding which type you're dealing with helps you respond the right way and prevent it happening again.

How do I stop someone from doing a chargeback?

You can't stop a customer from filing a chargeback once they've decided to do it, but you can reduce the chances by using fraud detection tools, clear billing descriptors, responsive customer service, and easy-to-find return policies. The goal is to solve issues before customers feel a chargeback is their only option.

Is it worth fighting a chargeback?

Fighting chargebacks isn't always worth it, and chargeback insurance may be a more cost-effective way to protect against losses. Challenging low-value transactions can cost more in fees and time, even if you win. Use this ROI formula to decide: (amount recovered minus cost of dispute) divided by cost of dispute. If the ROI is positive, it usually makes sense to dispute the chargeback.

What's the difference between a chargeback and a refund?

A refund is when you voluntarily return money to a customer, while a chargeback is when the customer's bank forcibly reverses the payment. Refunds cost you the transaction amount. Chargebacks cost you the transaction amount plus a fee, typically £15–£75, and can affect your standing with payment processors.

Sources and references

1. https://www.paymentscardsandmobile.com/wp-content/uploads/2023/10/2023-Chargeback-Outlook-Report.pdf

2. https://www.chargeflow.io/blog/everything-you-should-know-about-friendly-fraud

3. https://www.checkout.com/blog/uncovering-the-hidden-trends-shaping-ecommerce

4. https://sift.com/blog/from-data-to-action-chargeback-trends-and-fraud-strategies-for-2025