Chargeback
A customer disputing a charge through their bank. Costs the merchant: a $7-15 fee plus the lost amount. Above 1% puts the account at risk.
In practice
One chargeback costs 2-3x the original sale. Above 2%, the account can be terminated.
Common misconception
'The customer is always right in a chargeback.' You can dispute it. Proof of delivery, correspondence, and a pre-shipping photo all serve as protection.
How to fix it
High chargeback rate? (1) improve product descriptions, (2) tracking for every order, (3) easy returns, (4) 3D Secure.
Example
An electronics store: a 2.3% chargeback rate. 60% came from 3 products with inaccurate descriptions. Updating them plus a checkbox brought it down to 0.8% within 3 months.
Priority
Track the monthly chargeback rate. Above 0.5%, investigate immediately.
Related terms
Keep learning. Metrics that touch the same area:
- Friendly FraudPaymentsA customer who made a legitimate purchase and files a chargeback — forgot they bought it, didn't recognize the charge, a child bought without permission, or a deliberate attempt to get a free product. 30-40% of chargebacks are friendly fraud.
- Payment GatewayPaymentsA service for accepting payments. Stripe, PayPal, Tranzila, Cardcom. Fee: 1.4-3.5% plus a fixed amount.
- PCI DSSPaymentsSecurity requirements for any business handling credit card data. Non-compliance means fines and account termination.
- BNPL – Buy Now Pay LaterPaymentsKlarna, PayPlus, Afterpay — interest-free installment payments. Raises AOV by 20-30% but carries a 2-6% fee.
- Refund PolicyPaymentsThe terms and process for refunding a customer. A generous policy raises conversions by 18% on average.
- TokenizationPaymentsReplacing a credit card number with a unique string (a token) for storage and reuse. Enables repeat charges without storing card details — reduces breach risk and supports PCI DSS compliance.
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