On the seventh day of payments, my processor gave to me: chargeback protection.

Chargeback protection is one of the best gifts you can give your business. The holiday season means booming sales and online payment processing, but the post-holiday season can also mean an increase in chargebacks and a lot of fraudulent ones at that. Luckily, there are ways to make sure your business is prepared to deal with whatever comes its way. You can get ahead of the season of chargebacks by knowing what to do to avoid them and understanding how chargeback protection works for your business.

A recent National Retail Federation estimate shows holiday season return fraud alone tops $3.8 billion. As a merchant responsible for the successful future of your business, that is not a number that you want to impact you, too. Fortunately, there are ways to ensure that you have post-holiday chargeback protection by being proactive against the possibility.

Chargebacks 101

Whether you are a new business that is preparing for their first season of credit card chargebacks or a veteran business that knows the chargeback process, it helps to have all of the information in one place. We are going to break down the basics of a chargeback and the 7 steps of the chargeback process for you, step by step.

In the simplest terms, a chargeback is the reversal of charges after a purchase is made. Credit card chargebacks were originally conceptualized to be a form of consumer protection, and in that area, they work fairly well. People learned how to take advantage of the system, however, and this friendly fraud as it is often called now accounts for as much as 70% or more of all credit card fraud that occurs today. But, wait– what is friendly fraud?

Friendly fraud refers to those fraudulent chargebacks that come from sources that don’t immediately come to mind, like ordinary customers that may frequent your business. Friendly fraud occurs when somebody makes a legitimate purchase, receives their order, and then reverses the charges – simply because they believe that it’s something they can get away with. The best things you can do to prevent friendly fraud are to use as many security tools available in your merchant account as possible and keep good records to use as proof against a claim.

So what happens during these friendly and unfriendly fraud attempts? The process of a chargeback goes through a few different channels.

The 7 Steps of the Chargeback Process

There are four major entities that are involved in the chargeback process– the Cardholder, the Card Issuing Bank, the Processor and the Merchant. Each involved party has an important part to play.

chargeback protection

Although each of these steps is handled by different entities, it is still important for you as the merchant to know the entire chargeback process. However, knowing the steps of the chargeback process is just the beginning. Another key component to consider with chargebacks is, what a chargeback is costing your business? We have the answer.

Lack of Chargeback Protection Can Cost Your Business

Your business already has numerous expenses to keep it functioning, and a high volume of chargebacks could boost your expenses more than you’re ready for (and in ways you may not have anticipated). Some of the costs that might affect your business without chargeback protection are:

Profits: The more charges are reversed, the less profit your business holds onto.

Penalty Fees: Potential chargeback fees can be anywhere from $20-$100 per transaction dispute

Order Processing Costs: You lose profits associated with these costs, such as shipping fees or packing material costs.

Time: The chargeback process will take time for all involved parties to solve.

Your Reputation: A high chargeback rate will not instill a sense of trust in your business.

After a busy holiday season of putting out a high volume of orders, along with all of the associated fees and logistics, a high volume of post-holiday chargebacks can be a big hit to a business. Although chargebacks can occur at any time of the year, it’s important to understand why the post-holiday time of year is far more vulnerable for businesses.

Why Post-Holiday Chargebacks Occur

The chargeback process can take all of the happiness out of holiday profitability and turn it into fear, especially if the reason for the chargeback is a fraudulent one. The post-holiday season is one of the most popular times for chargebacks to occur because it is preceded by an equally high volume of sales for merchants. Plus, in the midst of a busy holiday season when businesses are swamped, they may also offer more relaxed return processes which provide easy openings for fraudulent chargebacks to occur. Along with these, here are some of the most common reasons for chargebacks you may hear about in the coming post-holiday season:

  • Customer disputes the quality of a product or service
  • Merchandise or service was never received
  • A credit was not processed
  • A duplicate credit was processed
  • Improper authorization
  • Fraudulent transaction
  • Inaccurate transaction information, such as price

Retail fraud cases always peak during and after the holiday season, whether it stems from full-fledged criminals or friendly fraudsters. The main source of post-holiday chargebacks, however, is a lack of sufficient chargeback protection. It is not enough to just know what you do when a chargeback occurs, it is equally important to know what you can do to prevent chargebacks before the post-holiday chargeback season hits.

How to Prevent Chargebacks

Along with proper data security, chargeback protection for merchants should be a real priority, because chargeback protection now will help your business later. One way to be proactive about chargeback protection is to watch your sales for repetitive card use during the holiday shopping season, but there is always more you can do. In fact, here are 6 strategies to be aware of in order to be proactive with chargeback protection.

Chargeback Protection and Prevention Strategies
  1. Improve the Process – Streamlining workflow to eliminate human error, such as implementing automated processes, will help to reduce the time and resources required to process a chargeback.
  2. Prioritize – Some chargebacks will be worth fighting and some won’t be, so be sure to prioritize which chargeback claim processes you want to spend your time and resources going through. Less time spent on chargeback processes can also mean fewer chargeback fees.
  3. Data Control – Properly collecting and using information from chargebacks gives the merchant the ability to adjust their business practices and identify where there might be internal issues.
  4. Clear Billing – A contact number or a URL on bills make it easier for customers to recognize purchases made with their credit card, reducing the chance of a mistaken chargeback.
  5. Fix Operations – Excessive chargebacks at a business may indicate operational issues, such as a quality control issue with merchandise, ineffective or misleading product marketing, or something more. Looking at your operations now can save you headaches later.
  6. Outsource – Bringing in a third party to help with all or some of the business’ chargebacks will free up resources and valuable time that can be better devoted to running a successful business.

A couple of other things you can do to be proactive about your chargeback protection plan are to:

Chargebacks are not 100% preventable for any business, but it is imperative to have a solid chargeback protection plan in place so that you are ready for them when they happen. The good news, however, is that you won’t have to plan chargeback protection or go through chargeback processes alone.

The Payline Effect

We explained earlier exactly how the chargeback process works and what entities work with your business to see you through to the end. A key player in that process is your payment processor. Whether you are a business that uses an in-store payment solution or an online payment processing service, a partner like Payline helps you keep your payments and sensitive information secure so that the need to fight chargebacks occurs less frequently.

The credit card issuing bank and payment processor will help you get a handle on chargebacks when they happen, and choosing the right payment processor can help you prevent fraud before it occurs. Your processor can help monitor and catch fraudulent alerts early before they become transactions and potential chargebacks. Payline wants your business’ payment processing to be as safe as possible, and chargeback protection is part of that.

For anything from finding the right mobile payments solution or getting a top-notch payment gateway and fraud protection, Payline is here to help your business be successful. We strive every day to provide our customers with a pain-free and transparent payment processing experience, along with constant customer support. Whatever your business needs for secure payment processing and chargeback protection planning, Payline has you covered.

Prevent Chargebacks Today


This piece was written by Lauren Minning, Content Specialist for Payline.