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Merchants: How to Stand Up Against Chargebacks

Chargebacks are a frustrating and rising cost of doing business, especially online. It happens when a customer contacts their credit card company to dispute a charge. Even before e-commerce was a thing, consumers were given the right by law to dispute credit card charges they thought were wrong or a mistake. Consumers were given the benefit of the doubt.

Fast-forward 50 years, with global losses up to 18% due to e-commerce fraud totaling over $20 billion, most chargebacks are hurting merchants more than protecting consumers.  

There are many reasons why chargebacks happen. Here are just a few:

  1. A customer claims they never got the product, they got the wrong product, the product was damaged, or the product wasn’t to their liking.
  2. The purchase was unauthorized because of a stolen/lost card or data breach.
  3. A customer was charged twice for the same transaction.
  4. A customer disputes a charge because it’s not clear on their statement what it is or where it’s from.
  5. A customer is simply unhappy with the product or feels slighted in some way.

And the list goes on and on. While there are legitimate reasons that chargebacks occur, research shows more than 60% of the 615 million chargebacks filed in 2021 were friendly fraud cases or first party fraud. Another source suggests the number is as high as 86%.

In these cases, you’re dealing with real cardholders who accidentally or deliberately dispute a charge. An example of an accidental dispute is a cardholder forgetting they made a purchase or weren’t aware someone else, like a child or partner, did. Cases of deliberate friendly fraud are real cardholders gaming the chargeback system to get products and services for free, leaving merchants to pay the price. 

Why You Should Dispute Chargebacks

Whether you decide to dispute a chargeback (known as chargeback representment), acknowledge a mistake happened and fix it, or let chargebacks go, there is a price to pay in time, fees, and lost merchandise or labor in the case of a service provider.

So what’s the point of fighting chargebacks, you say? First, it’s a relatively easy process if you know how and you’ve kept good records. Second, you can recoup the transaction amount when you win. Third, your lack of response could be taken by banks as an admission of guilt, which can make matters worse. And fourth, perhaps most importantly, you send a message to those who are deliberately trying to defraud you that you’re onto them, and they scurry away.  

Getting Ready to Represent

When you know or believe a chargeback is wrong, representment is the process merchants have to submit evidence they fulfilled their obligation to the cardholder. It’s called representment, because you are literally re-presenting the charge for processing as the funds have already been moved out of your account once a cardholder contacts their bank.

Representment usually takes the form of a cover letter and supporting documents that prove the charge is legitimate and should be restored. Here are three key strategies for improving your chances of a favorable outcome:

  1. Focus on the reason code.
    Every chargeback is assigned a reason code by the bank based on what was reported by the cardholder. Reason codes are a challenge. They can vary from bank to bank and be misleading. Whatever the case, use the reason code you were given and make sure your cover letter and supporting documents address the reason code directly.

While merchants typically have a short time to respond, cardholders have up to 120 days from the date of the transaction or the delivery date to dispute a charge. Therefore, it’s recommended to keep your transaction records for at least six months.

Prevent Chargebacks in the First Place

As it stands now, the aging chargeback process favors card holders for better and worse. However, advancements in fraud prevention technology are starting to shift more liability from merchants to cardholders.

One such advancement that provides chargeback protection is 3D Secure 2 or 3DS2. This fraud prevention solution authenticates a cardholder’s identity at the time of purchase and fully covers merchants from liability if fraud occurs by transferring responsibility to the card issuer.

With 3DS2, you can collect more pieces of information at checkout and automatically share it with your bank, the cardholder’s bank, and the payment processor – all in the span of a few seconds. The information is then used by the card issuer to assess the risk of the transaction. Less than 5% of transactions are considered high risk and require cardholders to provide additional information.

Fraud prevention like 3DS2 is a win for your customer experience and your bottom line. Talk to your payments provider to learn more about specific solutions that will benefit your business and save you from illegitimate chargebacks.


  1. Chargebacks911®, 2021: Chargebacks Stats
  2. Expert Market, 2021: Chargeback Fraud Statistics 2022: Everything You Need to Know About Chargeback Fraud
  3. Chargeback Gurus, 2021: Chargeback Rebuttal Letters: Explanation and Samples
  4., 2022: What are 3D Secure and 3DS2: Types and Functions Explained