How chargebacks affect merchants and their online businesses

Chargebacks or credit card disputes, are the bane of every merchant that accepts credit card payments. Not accepting credits card is impossible with almost every customer having at least 1 card. It’s a convenient and fast way to make purchases hence its wide spread usage everywhere.

How does a chargeback work?

The scenario goes like this; the customer checks their credit card bill and see something they don’t recognize. Alarm bells go off in their head. “Oh my God, my credit card has been compromised.” Sometimes, it’s just that someone didn’t recognize the purchase due a billing descriptor that does not match where they purchased the items. So, they file a credit card dispute with their card issuer.

The card issuer (“issuer”) will then send a notice to the merchant’s bank (“the acquirer”). In cases where it’s obviously a fraudulent purchase by a 3rd party, the issuer would just process the chargeback. Other times, the merchant is drawn into the chargeback process and given information about the disputed transaction. They then have to prepare various documentations to contest the chargeback. In addition, they only have a limited time frame to do so before the chargeback is automatically processed.

Is it fair to the merchants?

Merchants have to collate documentations from various sources like courier, payment gateways, etc. to prove that they did deliver the goods to the right people. Yes, it does seem a little unfair that they have to do all the work.

This is the reason why some merchants just can’t be bothered to fight the dispute when the value involved is insignificant. They would have accepted that it’s part of the cost of doing business.

Huge chargebacks can cripple a small business

Merchants running a small business may not be able to handle chargebacks for large amounts. Often times, these businesses are just barely keeping afloat, especially during challenging times such as during a pandemic. Any dent in their cash flow will definitely send them down the path to bankruptcy.

FraudLabs Pro can provide protection against fraud to minimize chargebacks

Fortunately, FraudLabs Pro provides a credit card fraud screening service that can detect most fraudulent purchases on merchants’ websites. Along with credit card and user blacklists that are updated all the time, merchants can relax a bit and let FraudLabs Pro shoulder the burden of screening orders.

Advanced algorithms screen for IP address geolocation, proxy server usage, shipping address disparity and so much more. Customizable business rules can be used to trigger a manual review or outright rejection of an order. Easy to use and setup but it is a very powerful tool in the fight against payment fraud.


Merchants only need to rely on the FraudLabs Pro fraud screening service to mitigate order fraud on their e-commerce sites. For small businesses, FraudLabs Pro can screen up to 500 orders for free every month. Hence, there is no reason why they shouldn’t include FraudLabs Pro into their shopping cart platforms.

Sign up for the free Micro plan today and start enjoying our fraud protection.

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