The Chargeback Challenge: How to Protect Your Business and Keep Payments Flowing

Point of View Article by Deyan Bochev, Risk Manager at CatalystPay

As a risk manager, I deal with chargebacks every single day. It’s the number one issue merchants struggle with, whether they’re selling physical products, digital goods, subscriptions, or services. And yet, most businesses don’t think about chargebacks until they become a serious problem.

At first, chargebacks might seem like just another operational headache - annoying but manageable. But then, the disputes start piling up. Revenue takes a hit, payment processors get involved, and suddenly, the business is scrambling to find solutions before it’s too late.

Chargebacks are no longer just a nuisance. With Visa’s new VAMP (Visa Acquirer Monitoring Program) tightening regulations, businesses that don’t take chargeback prevention seriously risk losing their ability to process payments entirely. If your chargeback rate crosses Visa’s new thresholds, you’ll face increased scrutiny, higher compliance requirements, and, in some cases, account termination.

I’ve seen this happen to businesses of all sizes. The common mistake? Thinking that chargebacks are only a problem when they become unmanageable. The truth is, by the time you realize you have a chargeback problem, you’re already playing catch-up.

Why Chargebacks Happen (and Why They Hurt So Much)

Chargebacks exist to protect consumers, allowing them to dispute fraudulent transactions, processing errors or consumer-related disputes. In theory, they’re a safeguard against bad business practices. But in reality? They can be misused and exploited, often leaving legitimate merchants to foot the bill.

Take a subscription business' chargeback issues. They offered a $1 free trial, with automatic renewal at $79.99 per month. It was all in the terms, but many customers claimed they “didn’t realize” they were signing up for ongoing billing. The chargebacks flooded in. The business tried fighting them, but without clear pre-billing notifications and an easy cancellation process, they kept losing.

Or a dropshipping company that sourced products overseas. Shipping delays were common, but customers weren’t willing to wait. Many filed chargebacks under “Item Not Received,” even though the product was still in transit. Without real-time tracking updates and signature confirmation for high-value orders, the disputes were nearly impossible to win.

Even traditional e-commerce stores struggle. Customers forget their purchase, dispute a charge just because they didn’t recognize it, or even commit chargeback fraud - getting their money back while keeping the product.

Chargebacks aren’t just lost revenue. They come with:

• Fees - Every chargeback costs you money, even if you win the dispute.
• Higher payment processing costs - Excessive chargebacks can lead to increased transaction fees.
• Frozen or terminated accounts - If your chargeback rate gets too high, your payment processor may shut you down.

What Merchants Need to Know Before They Start Processing Payments

Before accepting payments, merchants must understand the risks associated with chargebacks and the rules set by payment processors and card networks (Visa, Mastercard, etc.). I always advise merchants to make the following key considerations part of their risk management strategy:

• Understand chargeback reason codes: Each dispute has a reason code (fraud, item not received, subscription billing issues, etc.), and knowing what evidence is required to fight back is essential.
• Keep accurate records: Maintain transaction records, invoices, customer communications, and proof of delivery. Without documentation, winning disputes is nearly impossible.
• Implement strong fraud prevention measures: Use tools like 3D Secure authentication, AI-driven fraud detection, and velocity checks to stop fraudulent transactions before they happen.
• Have clear refund, cancellation, and delivery policies: Many chargebacks come from customers who didn’t fully understand how refunds or cancellations work. Clear policies reduce disputes.
• Monitor chargeback ratios: A high chargeback percentage (typically above 0.9%-1%, soon with VISA VAMP even lower) puts merchants at risk of penalties or account termination. Keep an eye on dispute trends.
• Research card scheme rules: Merchant Category Codes (MCCs) deemed high-risk by Visa and Mastercard may face stricter chargeback rules. Know what applies to your business.

How to Reduce and Prevent Chargebacks

So how do you fight back? The key is prevention is reducing the number of disputes before they happen and making sure you’re well-equipped to fight the ones that do.

1. Clear Transaction Descriptions & Pre-Chargeback Alerts

One of the biggest causes of chargebacks? Customers not recognizing the charge on their bank statement.

• Use clear billing descriptors: Instead of “ABC Holdings LLC,” make sure the statement shows your actual business name, website, or support number.
• Pre-chargeback alerts: Services like Ethoca and Verifi notify you when a customer disputes a charge, allowing you to issue a refund before it turns into a chargeback.

2. Keep Accurate Records (and Use Them to Fight Back)

Documentation is your best defense. If a dispute arises, you’ll need proof that the transaction was legitimate.

• Order confirmations and invoices: Send detailed receipts immediately after purchase.
• Shipping & delivery tracking: For physical products, provide tracking details and require signatures for high-ticket orders.
• Customer communication logs: If you have emails, chats, or call recordings proving that the customer received the product or service, that’s your evidence.

3. Fraud Prevention Measures

A significant percentage of chargebacks are due to actual fraud—stolen cards, unauthorized transactions, or even friendly fraud (where for example the cardholder’s card was used by a member of their household).

• Use 3D Secure authentication: This shifts liability to the card issuer in fraud cases.
• Monitor suspicious activity: AI-driven fraud detection tools can flag risky transactions before they go through.

4. Subscription Optimization: Transparent Billing & Easy Cancellations

Subscription-based businesses are particularly vulnerable to chargebacks, but small changes can make a big difference.

• Pre-billing reminders: Send an email or SMS before charging a recurring payment.
• Easy cancellation options: A frustrating cancellation process will push customers to their bank. If they can cancel in one click, they’re less likely to dispute the charge.
• Clear terms at checkout: Make it obvious that the customer is signing up for a subscription.

5. Provide Proactive Customer Support

Many chargebacks happen simply because the customer couldn’t reach support or didn’t get a refund fast enough.

• Offer multiple support channels: Live chat, email, and phone support should be easy to find.
• Respond quickly: Many customers will file a chargeback if they don’t get a response within 24-48 hours.
• Train your support team to handle refund requests before they escalate into disputes.

6. Dropshipping-Specific Solutions: Better Fulfillment & Customer Communication

If you’re shipping products from overseas, you have to proactively manage expectations to prevent chargebacks.

• Set realistic shipping times: If delivery takes 3-4 weeks, make that clear at checkout.
• Use local warehousing where possible: Third-party logistics (3PL) providers can speed up fulfillment.
• Automate shipping updates: Send tracking info before the customer asks for it.

7. Chargeback response: Fighting Back the Right Way

Even with the best prevention strategies, chargebacks will still happen. The key is knowing how to fight them effectively.

If you’re dealing with a chargeback, submit evidence that aligns with the Card Scheme’s dispute processing requirements

• For fraud claims: Compelling evidence that the cardholder is the true purchaser, e.g. Account name, email address, phone, IP and Geolocation data
• For “Item Not Received” claims: Tracking details, delivery confirmation, and customer emails acknowledging receipt.
• For subscription disputes: Proof of opt-in, pre-billing notifications, and cancellation policy visibility.

BONUS: Consider using chargeback management companies

For businesses with high transaction volumes or those struggling with excessive disputes, outsourcing chargeback management can be a game-changer.

• Automated dispute handling: Chargeback management companies use AI and expert teams to fight disputes efficiently.
• Better win rates: They understand the evidence banks require and improve your chances of winning.
• Reduced workload: Instead of handling disputes in-house, your team can focus on business growth.

Companies like ChargebackHelp and Chargebacks911 specialize in identifying patterns, preventing fraudulent disputes, and improving chargeback response strategies.

The Bottom Line: Chargebacks Are a Business Threat, Not Just a Nuisance

No matter what you sell, physical goods, digital products, subscriptions, or services chargebacks affect your bottom line. And with Visa tightening its policies, merchants that ignore chargeback management risk losing their ability to process payments altogether.

The best businesses don’t just react to chargebacks, they prevent them.

By combining clear communication, fraud prevention, proactive support, and dispute management, merchants can keep their chargeback ratio low, their payment accounts in good standing, and their revenue protected.

Because one thing is clear: chargebacks aren’t going away. But with the right strategies, they don’t have to be your downfall.