What are Chargebacks and How Do They Affect Your Business?

Why Chargebacks Matter

Chargebacks don’t just refund a transaction — they create wider impact:

• lost revenue and product
• additional chargeback fees
• increased fraud risk exposure
• potential damage to merchant account standing

Too many chargebacks can result in:

• higher processing fees
• monitoring programmes
• or even account termination

How the Chargeback Process Works

A chargeback typically follows these steps:

1. Customer disputes the transaction
2. Bank (issuer) reviews the claim
3. Funds are removed from the business
4. Merchant is notified and can respond
5. Evidence is reviewed
6. Final decision is made

This process can take weeks or months, tying up both time and resources.

Why Chargebacks Happen

Common reasons include:

• unauthorised transactions (fraud)
• goods not received
• goods not as described
• duplicate charges
• customer disputes (including friendly fraud)

In many cases, the business carries the burden of proof.

The Real Cost of Chargebacks

The true cost goes beyond the original transaction value.

Businesses may face:

• chargeback fees per dispute
• loss of goods or services
• administration and time costs
• increased fraud monitoring

Even a small number of chargebacks can quickly escalate into a larger issue.

Why Businesses Are Often Liable

In many cases, especially with remote payments:

• the cardholder is not verified
• transactions are not authenticated
• the payment is considered “non-secure”

This means that the liability sits with the business

How to Reduce Chargebacks

Reducing chargebacks starts with improving how payments are handled.

Authenticate Transactions

Using methods such as 3-D Secure helps confirm the genuine cardholder.

Avoid Manual Card Handling

Letting customers enter their own details reduces risk and dispute potential.

Use Secure Payment Processes

Hosted and verified payment methods reduce exposure to fraud.

Keep Clear Transaction Records

Accurate records help defend against invalid disputes.

The Link Between Chargebacks and Fraud

Many chargebacks are linked to fraud, particularly:

• card-not-present transactions
• unauthorised payments
• friendly fraud

Reducing fraud risk directly reduces chargeback rates.

Why Prevention Is Better Than Dispute

While chargebacks can sometimes be challenged, prevention is far more effective.

Once a chargeback is raised:

• funds are already lost
• time is already spent
• outcomes are uncertain

The strongest approach is to stop high-risk transactions before they happen

Protect Your Business from Chargebacks

Chargebacks are a costly part of modern payment processing, but they can be reduced with the right approach. By strengthening payment security and reducing fraud risk, businesses can protect revenue and maintain control over their transactions. One of our clients, Gala Tent, has recently celebrated a whole ten years without a single fraud-related chargeback. 

Speak to our team to get a demo of how SOTpay eradicates fraud-related chargebacks for businesses.