Chargeback fee

What is a chargeback?

A chargeback happens when a cardholder contacts their bank to dispute a transaction. The bank withdraws the amount from your account and starts an investigation process. Regardless of whether you win or lose the case, you will typically be charged a chargeback fee.

Chargebacks were originally introduced to protect consumers from fraud and unauthorized transactions. But they can also be misused - a phenomenon called "friendly fraud" - where the customer disputes a legitimate transaction.

What does a chargeback cost?

The cost of a chargeback consists of several parts:

• The transaction amount: You lose the entire amount the customer has paid. The item has typically already been shipped.
• Chargeback fee: The acquirer charges an administration fee, typically 150-250 kr. per chargeback.
• Shipping cost: You also lose the shipping cost you paid.
• Time spent: You'll need to spend time documenting and responding to the case if you want to dispute it.

In total, a single chargeback can cost you several times more than the original order value.

Common reasons for chargebacks

• Fraud: The card is stolen and the genuine cardholder disputes the transaction. This is the "legitimate" reason for chargebacks.
• Friendly fraud: The customer has received the item but claims to the bank that they never received it or that they did not complete the purchase.
• Dissatisfied customer: The customer is unhappy with the product and uses chargeback as an alternative to return because it's easier.
• Subscription error: The customer has been charged for a renewal they didn't expect or forgot about.
• Unrecognized transaction: The customer doesn't recognize your company name on the statement and thinks it's fraud.

How to prevent chargebacks

• Use 3D Secure: Make 3D Secure (Verified by Visa / Mastercard SecureCode) mandatory. This shifts responsibility to the card issuer for verified transactions and significantly reduces fraud chargebacks.
• Clear business name: Make sure your business name on the bank statement matches your webshop name so customers recognize the transaction.
• Good communication: Send order confirmation, shipping notification with tracking number and make it easy for customers to contact you.
• Easy return process: Make it easier to return than to make a chargeback. A visible and straightforward return policy reduces chargebacks.
• Documentation: Always keep proof of delivery (tracking), order confirmations and communication with the customer. This is your defense if you dispute a chargeback.
• Fraud detection: Use your payment gateway's fraud screening to catch suspicious orders before they ship.

Chargeback ratio

Your chargeback ratio is the proportion of chargebacks in relation to your total transaction volume. The card networks (Visa, Mastercard) monitor this ratio and if it exceeds typically 1% of transactions, you are at risk:

• Increased fees from your acquirer
• Requirements to implement additional fraud prevention measures
• Worst case scenario: termination of your acquirer agreement

What do you do when you receive a chargeback?

1. Assess the case: Is it legitimate (fraud) or unjustified (friendly fraud)?
2. Gather documentation: Proof of delivery, order confirmation, customer correspondence, IP address, 3D Secure data.
3. Respond by the deadline: You typically have 7-14 days to respond. If you miss the deadline, you automatically lose.
4. Submit via your acquirer: Your acquirer or gateway can help you submit your defense to the card issuer.