Strategies for preventing chargebacks include ensuring clear communication, providing excellent customer service, utilizing fraud prevention tools, and monitoring transactions and chargeback rates.

Why do you need to prevent chargebacks?

Maintaining a low chargeback ratio

Maintaining a low chargeback-to-transaction ratio is one of the most critical operational requirements for any business accepting card payments. High chargeback rates pose a significant threat that extends far beyond the loss of revenue from a single transaction.

Card networks strictly monitor supplier chargeback activity through specific global enforcement programs. If you exceed the allowed limits, you could face serious penalties that may impact your ability to process payments. Payment methods like PayPal have their own monitoring programs that track disputes and apply penalties.

By prioritizing chargeback prevention and diligently managing your ratios, you protect immediate revenue while safeguarding your payment processing relationships and your long-term business viability.

Card scheme monitoring programs and penalties

Both Visa and Mastercard have enforcement programs for suppliers with high chargeback rates.

Card Scheme	Enforcement Program	Key Consequence
Mastercard	Excessive Chargeback Merchant (ECM)	Suppliers exceeding certain thresholds (e.g., 100 or more chargebacks and a ratio of 1.5% or higher) face heavy fines, compliance audits, and remedial action plans.
Visa	Acquirer Monitoring Program (VAMP)	This program enforces risk compliance mainly through the acquirer. If a supplier's dispute activity puts the acquirer at risk, VAMP requires corrective actions, raises fees, and may lead to the loss of processing rights.

If chargeback rates do not decrease while in these programs, it can result in:

Escalating fines: Monthly fees increase significantly the longer the supplier remains non-compliant.
Increased scrutiny: Mandatory third-party audits and compliance reviews.
Potential termination: Ultimately, the card network may require the acquiring bank to terminate the supplier's payment processing abilities, severely incapacitating the supplier's ability to conduct business.

Operational and reputational risks

Reputational damage: High chargeback volume damages trust with consumers and financial partners.
Administrative drain: Disputing chargebacks consumes valuable internal resources (time, labor, legal).

Prevention strategies

To prevent chargebacks and maintain low rates, focus on these key strategies:

Clear communication: Ensure that product/service descriptions are accurate. Ensure that your terms, refund policy, and shipping information are easily accessible and clearly presented.
Confirm everything: Send order and shipping updates to customers.
Be recognizable: Use a billing descriptor that customers will recognize in their banking statements.
Be a customer service champ: Promptly answer customer questions. Make returns and refunds easy.
Fight fraud: Use Address Verification Service (AVS)/card verification value (CVV), 3D Secure, and other fraud detection tools. Monitoring fraud reports generated by Shopify or other third-party entities can help suppliers stay vigilant. Tracking IP addresses can also reveal discrepancies between the customer's billing and shipping addresses, which can help detect fraud.
Keep an eye on things: Monitor your chargeback rate, determine why chargebacks happen, and identify areas for improvement.

How Reach protects your chargeback ratios

Reach works to protect your processing privileges by implementing automations that resolve disputes before they officially become chargebacks and trigger scheme penalties. We mitigate your risk exposure by making the RDR and Ethoca Alerts solutions available. RDR and Ethoca Alerts require the supplier's enrollment.

Rapid Dispute Resolution (RDR)

Visa and Verifi's RDR offers automated refunds based on custom, pre-set rules that you define. RDR issues an immediate refund when a dispute is filed based on these rules. This is a hands-off, automated action.

RDR prevents double exposure by stopping the case from escalating to a chargeback and ensures that these cases never count against your chargeback ratio or trigger VAMP monitoring.

Setting RDR thresholds

Through Reach, you can set your own parameters and thresholds for RDR. Suppliers can choose which low-value or high-risk cases should be automatically refunded, and which cases are valuable enough to fight through formal representment. This allows for a data-driven strategy that keeps your ratios low while maximizing winnable revenue.

Ethoca Alerts

Ethoca Alerts are part of Mastercard's Ethoca platform. It sends suppliers a real-time warning for both fraudulent and customer service-related issues (e.g., non-receipt) when they are received.

The supplier has a short window (typically 24 hours) to manually review the order and choose whether to issue a refund. By providing a refund, you can proactively stop a case from escalating to a chargeback and avoid the associated fee and ratio impact.