Most Common Types of Chargebacks

Most Common Types of Chargebacks

By In Uncategorized On April 8, 2015

Chargebacks are upsetting the balance of the payment processing industry ultimately pitting merchant against consumer.  When a chargeback is initiated by a consumer, the merchant involved is blacklisted and a once booming ecommerce business is drowning in fees.  Conquering chargebacks as a merchant involves a two-part process: prevention with customer service and then strategically fighting the chargeback once it is identified.  The problem most merchants face is how to correctly identify a specific type of chargeback, and usually those end up being the most common types affecting the ecommerce market.

The three most common types of chargebacks are merchant error, unauthorized use of card, and friendly fraud.  The preventative efforts for each chargeback are essential as well as the different strategies to fight the chargeback once initiated.  Merchants are oftentimes confused by the lengthy list of chargeback reason codes supplied by Visa and MasterCard, when in reality there are three main instances targeting ecommerce businesses.

Merchant Error

It is expected of merchants handling a large influx of sales that mistakes are will be made within the business.  Chargebacks are usually filed by the consumer due to these hidden errors or internal problems caused by the merchants themselves.

Unauthorized Use of Card

This common type of chargeback is a result of true criminal fraud such as identity theft or unauthorized transactions.  Consumers were unaware of the purchase of a good or service and the merchant involved suffers the consequence of a chargeback.

Friendly Fraud

This type of “chargeback fraud” occurs when a consumer is disinterested in contacting the merchant to conduct a proper return.  This ever-growing scam via consumers referred to in the industry as “cyber shoplifting”, costs merchants in all market sizes and penalizes them for their responsibility of providing promised goods or services.

Although each chargeback is conducted under different circumstances, merchants can apply the same preventative efforts to cover all of their bases:

Customer Service

The connection between customers and online merchants may in fact lead to the outcome of the customer’s ultimate decision.  By processing refunds in a timely manner as well as notifying consumers once their refund is processed, merchants will likely avoid the hassle of a disgruntled consumer running to the bank to file a chargeback.  Merchants will receive greater results by simply talking with customers to resolve their issues and hopefully increase future sales!


To stop the chargeback cycle before it has begun, merchants should attempt to receive an approval for every transaction made in their business as well as a card security code when a payment is accepted online.  By keeping all associated documents in a transaction neatly stored, the evidence will be overwhelming for any consumer to file a chargeback in a fraudulent manner.

Prevention is Crucial

Credit card companies are vigilant about tracking chargebacks. Any merchant processor that sustains too many will receive a heavy dose of retribution. Therefore, the processors pass the buck on to the merchants.  Any business that has a high chargeback-to-transaction ratio will be labeled an excessive chargeback merchant. Wear that badge for too long, and the processor will simply terminate your account. To them, losing your business is preferable to experiencing the wrath of the credit card companies.

Even if you do fight against every chargeback you receive—and are the beneficiary of some miracles so that those disputes are found in your favor—it isn’t enough. Winning a chargeback reversal doesn’t improve the chargeback-to-transaction ratio.  Therefore, it is essential to prevent the chargebacks from happening. And that won’t be easy.  While there are several things you can do to decrease the odds of a chargeback, there isn’t a one-size-fits-all remedy. Each individual business will require a customized approach to chargeback management.