Chargeback fee

What is a chargeback?

A chargeback occurs when a cardholder contacts their bank to dispute a transaction. The bank reverses the amount from your account and initiates an investigation. Regardless of whether you win or lose the dispute, you’ll typically be charged a chargeback fee.

Chargebacks were originally introduced to protect consumers from fraud and unauthorized transactions. However, they can also be misused—a phenomenon known as “friendly fraud”—where the customer disputes a legitimate transaction.

How much does a chargeback cost?

The cost of a chargeback consists of several parts:

• Transaction amount: You lose the entire amount the customer paid. The item has typically already been shipped.
• Chargeback fee: The acquirer charges an administrative fee, typically 150–250 DKK per chargeback.
• Shipping costs: You also lose the shipping costs you paid.
• Time spent: You’ll need to spend time documenting and responding to the case if you want to dispute it.

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

Common reasons for chargebacks

• Fraud: The card has been stolen, and the actual 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 make the purchase.
• Dissatisfied customer: The customer is dissatisfied with the product and uses a chargeback as an alternative to returning it because it’s easier.
• Subscription error: The customer has been charged for a renewal they didn’t expect or had forgotten about.
• Unrecognized transaction: The customer does not recognize your company name on their bank statement and believes it is a scam.

How to Prevent Chargebacks

• Use 3D Secure: Make 3D Secure (Verified by Visa / Mastercard SecureCode) mandatory. This shifts liability to the card issuer for verified transactions and significantly reduces fraud-related chargebacks.
• Clear company name: Make sure your company name on the bank statement matches your online store name so customers recognize the transaction.
• Good Communication: Send order confirmations and shipping notifications with tracking numbers, and make it easy for customers to contact you.
• Easy return process: Make it easier to return an item than to file a chargeback. A visible and straightforward return policy reduces chargebacks.
• Documentation: Always save proof of delivery (tracking), order confirmations, and communication with the customer. This serves as your defense if you dispute a chargeback.
• Fraud detection: Use your payment gateway’s fraud screening to catch suspicious orders before they’re shipped.

Chargeback ratio

Your chargeback ratio is the percentage of chargebacks relative to your total transaction volume. Card networks (Visa, Mastercard) monitor this ratio, and if it typically exceeds 1% of your transactions, you risk:

• Higher fees from your acquirer
• Requirements to implement additional fraud prevention measures
• In the worst case: termination of your acquiring agreement

What should you do when you receive a chargeback?

1. Assess the situation: 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 through your acquirer: Your acquirer or payment gateway can help you submit your defense to the card issuer.