Chargeback prevention 101: Strategies to protect revenue - Ekata, a Mastercard company
Ekata is part of the Mastercard family. Ekata's solutions provide the most predictive and frictionless identity verification.

Ekata is part of the Mastercard family. Ekata's solutions provide the most predictive and frictionless identity verification.

Chargeback prevention 101: How merchants can protect their bottom line

Given that chargebacks have been designed to protect consumers, merchants can sometimes find themselves at a disadvantage when it comes to disputing chargebacks. Unless they can provide strong evidence to dispute a customer’s chargeback claim, online retailers are going to get hit.

Article at a glance:

  • The comprehensive costs and consequences associated with chargebacks for merchants, including direct and indirect expenses, operational costs and potential brand damage.
  • Chargeback prevention tips that merchants can utilize, such as staff training for effective dispute management, proactive customer communication and investing in technology that enables digital identity verification and risk assessment.
  • How the Identity Engine can help merchants prevent chargebacks and optimize risk decisioning to enhance customer conversions while detecting fraudulent activity.

So significant is the cost of chargebacks to the industry, that Mastercard has estimated the global chargeback volume will hit $111.47 billion by the end of 2023. As we enter the holiday season, a time when experts agree that chargeback fraud surges, it is important merchants have in place best-in-class mitigation measures.

Below we outline what is included in the above chargeback costs and, importantly, the key components to a chargeback-prevention strategy for merchants in 2023 and beyond.

cost of chargeback fraud

A brief summary of the costs and consequences of chargebacks

When it comes to calculating the cost of chargebacks to merchants, it helps to understand there are direct costs as well as indirect, hidden costs. Naturally, the most immediate financial consequence of a chargeback to a merchant is the loss of revenue from the original transaction. However, as the Merchant Risk Council has calculated, the actual cost exceeds the directly disputed dollar amount, sometimes by as much as 1.5 to 2.5 times; especially when operational costs and payment processor or issuer fees are taken into account.

On top of this chargeback cost, is the actual cost of the item purchased. Should the merchant see the product returned, they must still calculate the shipping, restocking and packing costs. However, if it’s not returned? They lose both payment and product.

Next, consider the cost of operations. How much time and resources are spent managing a chargeback? It’s not a straightforward process to compile a compelling case against a chargeback. If a merchant wants to dispute a charge, transaction evidence needs to be collected on top of communication with the bank and processors.

Finally, there’s the reputation hit a merchant can receive to their business if a chargeback dispute leads to bad reviews. The consequences of brand damage can be far-reaching and costly.

small business chargeback prevention

Chargeback prevention tips for merchants

There are preventative measures that merchants can take to effectively mitigate chargebacks from consumers. This includes investing in staff training to understand effective dispute management better and provide proactive customer communication. A merchant equipping their team with the tools necessary to de-escalate a situation goes a long way in not only preventing chargebacks but also enabling a better consumer experience.

However, when it comes to investing in technology, it’s important to choose tools and products that enable true digital identity verification and risk assessment. Indeed, when a merchant knows that a customer is who they say they are, they not only mitigate identity fraud but can also prevent friendly fraud chargeback abuse.

As a global leader in identity, we enable merchants to validate, verify and authenticate genuine consumers, globally and at scale. Our products and tools leverage intelligent, authoritative data and insights, providing actionable insights to optimize risk decisioning, increase customer conversions and detect fraudulent activity.

Specifically, our Identity Engine, built around the five core identity attributes of name, email, address, phone and IP, leverages machine learning predictions that can prevent chargebacks from occurring.

Contact us to learn more about how the Identity Engine enables seamless chargeback prevention.


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