How to prevent chargebacks and disputes in ecommerce

Although there are several different ways to calculate the cost of chargebacks for an individual merchant, there’s no question that they are rising exponentially.

The good news is that chargebacks tend to follow repeatable patterns, and once those patterns are obvious, merchants can address the factors that drive disputes instead of wasting time and money fighting them after the fact.

Let’s now define chargebacks, explain the main causes, and outline practical ways to stay ahead of them.

What is a chargeback?

A chargeback is a forced reversal of funds after a cardholder disputes a transaction with their bank instead of requesting a refund from the merchant. The issuing bank refunds the cardholder, takes the transaction amount back from the merchant, and holds the funds while the dispute is reviewed.

At this point, the merchant is expected to respond with evidence. If the dispute cannot be successfully challenged, the merchant loses their revenue from the sale, pays a chargeback fee, and the dispute also counts toward their chargeback ratio.

Chargebacks were initially introduced to protect consumers from fraud and billing errors. But for merchants who deal with disputes at scale, chargebacks bring increased costs and indeed risk.

We should also note that card schemes calculate chargeback ratios for monitoring programs such as VAMP in complicated ways, with some chargebacks even counted twice.

How big of a problem are chargebacks?

Chargebacks are unquestionably an issue for merchants – and this goes for both fraudulent and not fraudulent chargebacks. Predictions and findings from the wider payments industry shows that they are on the rise, as well. For instance, Mastercard is expecting a 24% rise by 2028, according to a recent report.

In Ravelin’s latest Global Fraud Trends Report, more than half of merchants reported an increase in first-party chargeback fraud. Increases were particularly pronounced in the Marketplaces (36% of companies) and Travel (26%) sectors. Payments fraud more generally, which includes payments with stolen cards which lead to chargebacks, increased for 75% of merchants.

At the same time, merchants are becoming less successful when they do challenge chargebacks.

The average merchant challenged 42% of chargebacks in 2024 and was successful 49% of the time. In 2025, those numbers dropped to 38% and 43% respectively. The Marketplaces sector was again the worst performer, with just 33% of chargebacks successfully challenged.

Are chargebacks and disputes the same?

While the terms chargeback and dispute are sometimes used interchangeably, they actually describe different stages of the same process:

• A dispute is created when the cardholder questions a transaction with their bank.

• A chargeback occurs later, when the card network formally reverses the payment and notifies the merchant.

Types of chargebacks

Most chargebacks fall into two broad categories: fraud and non-fraud disputes.

Fraud disputes occur when a cardholder claims a transaction was unauthorized. Non-fraud disputes, on the other hand, occur when the cardholder recognizes the transaction but challenges it for another reason.

Note that in some instances, non-fraud disputes may later be found to involve friendly fraud, where the cardholder falsely claims an issue with a legitimate transaction.

Let’s see how different types of chargeback requests map to Visa’s dispute categories and associated reason codes.

Are all chargebacks fraudulent?

No, not all chargebacks are fraudulent. But all types of chargebacks are best avoided, as they all have associated costs for merchants.

Some reasons why a cardholder may file a dispute with their card issuing bank besides fraud include when they:

• Don’t recognize a transaction

• Are unhappy with the quality of the item

• Believe the delivery company have damaged or mishandled the item

• Find it easier to contact their bank than the merchant

It’s also critical to distinguish chargebacks from other forms of friendly/first party fraud such as refund abuse, where a customer takes advantage of the merchant’s refund policy for personal gain.

There are key differences between fraudulent chargebacks and refund abuse, and in fact merchants might prefer to issue refunds in many cases, as they tend to cost less than a chargeback.

Why merchants should always avoid chargebacks – fraudulent or not

Chargebacks cost merchants far more than just the value of the refunded transaction.

Even if a dispute is successfully challenged, merchants typically pay a non-refundable fee of $20–$100 per chargeback plus the cost of fulfilled goods or services, operational overhead, and internal handling time.

Moreover, merchants and PSPs with excessive chargeback rates are charged more by card schemes for every single transaction – and if it goes really wrong, merchants may even be stopped from accepting cards from a certain card scheme altogether.

For example, under the new for 2025 Visa Acquirer Monitoring Program (VAMP), merchants can be flagged if they exceed both of the following thresholds in the same month:

• A combined fraud and dispute rate above 2.2% (dropping to 1.5% from April 2026)

• At least 1,500 combined fraud and dispute cases

If dispute levels remain above threshold for consecutive months, merchants may face additional fees of $8 per transaction, along with closer scrutiny from their bank or payment provider.

This is just one example – with different schemes come different expectations, while Visa’s rules are fairly complex as well.

How do you challenge a chargeback?

Merchants can try to reverse a chargeback by submitting counterevidence to the cardholder’s bank. The aim here is simple: to show that the transaction was legitimate and that the underlying reason for the chargeback is invalid.

In practice, merchants must:

• Identify the chargeback reason code

• Gather evidence to directly address the claim

• Submit clear, complete documentation within stated timeframes

The key thing to remember here is that good evidence is specific evidence.

Here are examples of what merchants can provide based on the claim type:

• “Item not received” claims – delivery photos, timestamps, or signatures (not just courier status updates)

• “Defective or not as described” claims – customer-provided photos that clearly show the issue

• “Unrecognized transaction” claims – order confirmations, login activity, IP or device data, records showing when digital content was accessed

In their attempts to reduce the associated costs, some merchants seek out chargeback guarantee solutions that promise to absorb chargeback risk on certain, approved transactions.

But these services come with a caveat. Providers decide what gets approved and may block legitimate customers in the pursuit of risk management, which may reduce revenue and result in merchants having a poor understanding of current fraud threats.

That balance between risk management and control is worth considering before committing to a chargeback guarantee service – and it’s best practice for merchants across the board.

Ultimately, the best fraud detection maximizes acceptance and minimizes chargebacks while keeping the needs and goals of the merchant top of mind.

Who is liable for chargebacks?

Normally, a merchant is liable for chargebacks, which is a key reason to do your best to prevent them.

However, when applied correctly, 3D Secure – which is mandated in certain regions and just recommended in others – can often shift the liability for the payment to the issuing bank, if the authentication succeeds.

This is a key reason for merchants to consider deploying their own 3DS solution, together with more opportunities for frictionless transactions and improved relationships with card schemes. In our latest Global Payments Report, 32% of merchants listed “reducing chargebacks” as a key reason to authenticate.

Chargeback liability and digital wallets

Digital wallets are now used in around half of all global ecommerce transactions, and their prevalence is expected to increase. What’s more, consumer digital wallet spending is predicted to hit US$28 trillion by 2030.

These numbers have implications for chargebacks too. While options like Apple Pay and Google Pay do reduce some fraud at checkout, they also restrict the information merchants receive after a dispute is raised.

When data sharing is limited, it can be harder to prove what happened and makes disputes more difficult to resolve.

There are specific rules and recommendations around liability for digital wallets, which merchants are advised to be aware of.

Specifically, make sure you understand the difference between CRYPTOGRAM_3DS and PAN_ONLY payments on Google Wallet, as the liability for chargebacks differs significantly for these two.

How to prevent chargebacks as a merchant

As payment methods evolve, recovering funds after a chargeback has also become less predictable. And with less data available in digital wallet transactions, prevention has never been more important.

With that in mind, we’ve outlined a few key ways merchants can become more proactive in this area.

• Block abusive behavior early: AI-based fraud detection can identify high-risk behavior before transactions settle, reducing merchant exposure to both genuine fraud and friendly fraud.
  
  

• Encourage customers to contact you first: Simple, responsive support channels and transparent refund processes make it easier for customers to resolve issues directly with the merchant. The objective here is to avoid customers defaulting to simply contacting their bank because – let’s face it, a chargeback is by default more expensive than a refund.

• Authenticate selectively: In our Global Payments Report 2026, we found that 77% of merchants increased their use of authentication tools such as 3D Secure in the past year. Used intelligently, these tools can reduce fraud-related chargebacks without introducing unnecessary customer friction.

• Make transactions recognizable: Clear billing descriptors, order confirmations, and regular delivery updates help customers recall legitimate transactions and reduce “unrecognized charge” disputes.

Robust, scalable fraud detection can be integral to reducing your dispute rate. Get in touch with a member of the Ravelin team for more information.