Chargebacks are exploited as free refunds, harming merchants
Reddit Community
Community Problem
Elevator Pitch
Merchants face significant financial losses and operational overhead due to customers abusing the chargeback system for refunds, turning it into a 'free refund button' with no recourse.
Full Description
I'm seeing something that doesn't make sense and I'm curious if other merchants are experiencing this.
Customer buys a digital product.
Uses it.
Sometimes even contacts support and gets help.
Then instead of asking for a refund…
They go straight to the bank and file a dispute.
Now we get hit with:
• chargeback fee • lost revenue • higher dispute ratio
And apparently if your dispute ratio gets too high you can end up in monitoring programs with Visa or your payment processor.
Which is insane because merchants often have no idea a dispute is coming until it's already filed.
Once that happens it's basically damage control.
Representment takes hours to prepare and most cases still get lost.
Meanwhile the customer keeps the product AND gets the money back.
I feel like the system is extremely tilted.
Are merchants just expected to absorb this now?
Or is there actually a way people are preventing these disputes before they happen?
Honestly starting to feel like chargebacks have turned into a "free refund button" for customers.
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Discussion
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From the Reddit thread(5 top comments)
- 20·Reddit commenter·1mo ago
No… chargebacks are actually less of a free refund now than they were 10-20 years ago. I got into Ecom in 09 and chargebacks were rampant and a straight loss. Way worse than it is today. I think in 2014 or so credit card companies changed their standards for disputes. If you were an online business, they didn’t even care what documentation you had. It’s still annoying and shitty, but less than it was then.
permalink ↗ - 19·Reddit commenter·1mo ago
why are your posts formatted like a linkedin post, with every sentence on a new line? what has happened to reddit? nobody can simply write a coherent thought anymore.
permalink ↗ - 19·Reddit commenter·1mo ago
I get very few charge backs. I've had 3 in the 18 months since I launched my web app with thousands of paying users. I have an easy process for users to cancel and if a customer asks for a refund I give it to them - unless I feel they are fully taking the piss. You might need to look at your product and if you're over promising, cancellation process and refund policy.
permalink ↗ - 10·Reddit commenter·1mo ago·reply
Because people on mobile have narrow screens, and it doesn't take a very long sentence to get to 5 lines, which is somewhere near where readability drops off a cliff. Best to err on the side of readability, even at the cost of some choppiness.
permalink ↗ - 5·Reddit commenter·1mo ago
We saw this with a small SaaS product a while back and it was almost never actual fraud. Most of the time the customer just didn’t recognize the charge or didn’t want to deal with support. What helped a bit was making the billing descriptor super clear and sending a quick "your card was charged" email right away with a simple refund path. It doesn’t stop everything, but when the refund option is obvious people are less likely to go straight to the bank. Chargebacks still happen though, it kind of feels like a cost of doing business with cards.
permalink ↗