How Do Chargebacks Affect Merchants?

By Virginia Miller

May 12, 2026

In this article:

Chargebacks are a common problem for merchants operating in the eCommerce space. And, this problem gets bigger with every passing year.

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Data from Mastercard suggests that global chargeback volume may reach $117.47 billion by 2023. Most of those losses will not be tied to the cost of the initial sale. Accounting for chargeback fees and other related revenue drains, the average chargeback will ultimately cost merchants $3.60 for every $1 in sales value. Why is this the case, though?

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Perhaps the main cause of these staggering figures is that the chargeback process is antiquated. It’s governed by rules that are often unevenly enforced.

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Chargebacks are the banking industry’s primary tool to recover revenue lost to fraud or abuse. As such, customers are more empowered than ever to bypass merchants altogether in pursuit of a refund…even when they may not be entitled to one.

Understanding Chargebacks

Chargebacks occur when a customer's bank reverses a credit or debit card charge. They serve an important purpose as a consumer protection mechanism when used properly. There are two main reasons a customer can request a chargeback:

Merchant Errors

If a merchant makes a mistake that results in improper charges or failure to deliver goods or services, the customer has the right to file a chargeback. This encourages merchants to provide good service and follow through on promises.

Criminal Fraud

Customers can also file chargebacks in cases of criminal fraud, such as if someone stole their card and made unauthorized purchases. This protects consumers from losses due to fraudulent activity.

However, many chargebacks occur due to friendly fraud - when a customer makes an authorized purchase but later disputes it without a valid reason. Friendly fraud chargebacks are increasing, causing major headaches for merchants.

When Customers Can Request Chargebacks

Customers may file a chargeback if:

Unauthorized charges show up on their statement
Goods or services were never delivered
Items arrived damaged, defective, or not as described
The merchant double-charged them

In cases of suspected fraud, they should contact their bank immediately. For other issues, it's best to contact the merchant first to resolve the problem directly before disputing through the bank.

Costs of Chargebacks

Every chargeback costs merchants a fee, usually $20-$100. Even if later canceled, the fees stand. When customers file chargebacks and keep goods received, the merchant loses that revenue. High chargeback rates can also lead to heavy fines from card networks and potential account termination.

Preventing and Managing Chargebacks

Merchants can take steps to minimize chargebacks:

Carefully track chargeback metrics
Calculate net chargeback recovery rates accurately
Monitor overall chargeback ratios to avoid breaching thresholds
Use chargeback management software to organize responses
Create clear policies explaining appropriate use of chargebacks
Educate customers on when to file disputes

With diligent prevention and dispute management, merchants can mitigate revenue losses and maintain card processing privileges.

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Frequently Asked Questions

What are chargebacks?

Chargebacks occur when a customer disputes a credit or debit card purchase and the bank reverses the charges. They serve as a consumer protection method.

When can customers request chargebacks?

Customers may file chargebacks for unauthorized charges, undelivered goods, damaged/defective items, double charges, or fraud. They should contact the merchant first before the bank.

What are the costs of chargebacks?

Merchants get hit with fees of $20-$100 per chargeback. High dispute rates also lead to fines from card networks and potential account termination.

How can merchants prevent chargebacks?

Strategies like monitoring metrics, using management software, educating customers, and creating chargeback prevention policies can help minimize disputes.

What is a chargeback ratio threshold?

Card networks set limits on the percentage of transactions a merchant can have disputed before facing fines or account closure. Staying under the threshold is key.

What is friendly fraud?

Friendly fraud refers to chargebacks filed for unauthorized purchases that the cardholder actually made intentionally. This type of dispute abuse is growing.

How can merchants respond to chargebacks?

Merchants can provide evidence to dispute illegitimate chargebacks, but have low success rates recovering funds. Prevention is more effective long-term.

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How Do Chargebacks Affect Merchants?

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