Chargebacks in High-Risk Businesses: Prevention Guide

A chargeback occurs when a customer disputes a credit card transaction, leading to a reversal of funds from the merchant’s account. This process is designed to protect consumers from fraud, but it can be costly for businesses.

For instance, under Visa’s Dispute Monitoring framework, merchants enter the Standard category when they register 100 or more chargebacks in a month paired with a chargeback ratio of 0.9% or higher, which triggers intensified monitoring and potential enforcement. More severe thresholds, such as the Excessive category, apply at 1,000 chargebacks or a 1.8% dispute ratio.

High-risk industries, such as travel, digital goods, and subscription services, are particularly vulnerable to chargebacks due to their high-ticket transactions, digital delivery, and recurring billing models. In 2024, the travel industry experienced a significant surge in chargeback rates, underscoring the challenges faced by these sectors.

Preventing chargebacks is crucial for maintaining financial stability and a positive relationship with payment processors. Implementing robust fraud detection systems, clear billing practices, and effective customer service can mitigate the risk of chargebacks and protect businesses from potential penalties. This article explores how you can prevent chargebacks in high-risk industries.

What Are Chargebacks?

A chargeback is a payment reversal initiated by the cardholder’s issuing bank when a customer disputes a transaction. Instead of contacting the business directly, the customer requests that their bank reverse the payment.

This process is governed by consumer protection laws like the Truth in Lending Act (Regulation Z) for credit cards and the Electronic Fund Transfer Act (Regulation E) for debit cards in the United States. The purpose is to safeguard consumers from fraud, billing errors, or unauthorized charges.

However, many consumers misuse chargebacks, turning them into a tool for “friendly fraud.” This occurs when a buyer disputes a legitimate transaction, for example, denying a valid online purchase after receiving the product. Merchants are then forced to prove the sale was legitimate, often investing significant time and resources.

To fully understand chargebacks, it helps to compare them with refunds and disputes:

• Refunds are voluntary. When a customer requests money back, the merchant processes it directly. No banks intervene, making refunds quicker and less damaging for the business.
• Disputes are the initial complaints customers file with their issuing bank when they feel a charge is incorrect. If the issue cannot be resolved, the bank escalates it into a formal chargeback.
• Chargebacks are the final step, in which the issuing bank forcibly reverses funds from the merchant. The process involves evidence collection, fee payment, and, in some cases, penalties.

In practice, a dispute may or may not turn into a chargeback. Merchants often prefer issuing refunds before disputes escalate, as a single chargeback can reverse the transaction amount, incur additional fees, and pose a long-term risk to their payment processing accounts.

Why Chargebacks Are a Bigger Problem for High-Risk Businesses?

While every business faces disputes, chargebacks are particularly damaging for high-risk industries, including travel, CBD, nutraceuticals, adult entertainment, subscription services, and online gaming. Banks and payment processors closely monitor these sectors because they statistically experience a higher incidence of disputes and fraudulent behavior.

1. Elevated Chargeback Ratios

High-risk businesses often operate in industries where customer dissatisfaction or regulatory scrutiny is more common. For example, the travel and hospitality sector saw an 816% increase in chargeback rates, jumping from 0.10% in 2023 to 0.916% in 2024. Similarly, e-commerce disputes rose by 222% in the same period. These spikes illustrate why processors consider specific industries inherently riskier.

The Federal Reserve reports that in the U.S., credit card processing fees typically range from 1.5% to 3% of the transaction amount. Once a merchant exceeds that rate, they may be flagged for dispute monitoring programs, required to place rolling reserves, or even risk account termination

2. Stricter Oversight by Payment Processors

Unlike low-risk businesses, high-risk merchants face stricter rules and monitoring. If chargeback rates exceed safe thresholds, they can be placed on the MATCH List, a database maintained by Mastercard that prevents businesses from obtaining new merchant accounts for up to five years.

This blocklist can effectively prevent businesses from accepting credit card payments, which is detrimental to online industries.

3. Industry-Specific Vulnerabilities

Different high-risk sectors face unique triggers for disputes:

• Travel: Frequent cancellations, delays, or dissatisfaction with services.
• CBD and nutraceuticals: Regulatory uncertainty and inconsistent product quality.
• Gaming and adult content: High fraud rates due to anonymity and recurring billing.
• Subscription services: Customers forgetting recurring payments and disputing charges.

These built-in vulnerabilities make chargebacks nearly unavoidable, even when businesses act in good faith.

4. Financial and Operational Burden

The financial impact of chargebacks extends far beyond the refunded transaction. According to Mastercard, fraudulent chargebacks are projected to cost global businesses $15 billion in 2025, with the total chargeback market expected to reach $41.7 billion by 2028. For merchants, each $100 lost to a chargeback can cost them $240, once fees, labor, and product loss are included.

This means high-risk businesses not only deal with higher volumes of chargebacks but also face exponentially higher costs per case, alongside long-term damage to their ability to process payments.

Common Causes of Chargebacks in High-Risk Industries

High-risk industries such as travel, CBD, nutraceuticals, gaming, adult entertainment, and subscription services consistently face higher chargeback ratios than traditional businesses.

These industries attract disputes not only because of fraud but also because of customer expectations, recurring billing complexities, and regulatory oversight. Understanding the root causes is essential for merchants to mitigate risks effectively.

Fraudulent Transactions

Fraud is one of the leading causes of chargebacks across high-risk sectors.

• Stolen cards: Criminals frequently use stolen or duplicated card details in card-not-present transactions. When cardholders discover unauthorized charges, they typically dispute them immediately.
• Friendly fraud: Legitimate customers sometimes file false disputes, claiming they didn’t authorize or receive a purchase. This practice accounts for 60–80% of all chargebacks.
• Identity theft: Fraudsters use stolen personal identities to place orders, resulting in inevitable disputes once the victims are notified.

Once fees, administrative costs, and lost goods are included, merchants lose an estimated $3.00 for every $1 in direct fraud.

Customer Dissatisfaction

Unmet customer expectations create another common pathway to chargebacks.

• Misleading product descriptions: Incomplete or inaccurate product listings can leave customers feeling misled.
• Poor service: A lack of responsive customer support or unresolved issues prompts buyers to bypass the merchant and go directly to their bank.
• Late or failed delivery: In industries like e-commerce and travel, delivery delays or cancellations are among the top triggers.

In the travel and hospitality industry, a significant share of chargebacks stems from cancellations, customer dissatisfaction, or policy confusion. For example, hospitality businesses note that nearly 49% of consumers who cancel reservations end up filing chargebacks, rather than seeking direct refunds, even when they’re entitled to them. This underscores how ambiguous or poorly communicated cancellation and refund terms can directly contribute to chargeback risk.

Recurring Billing Issues

Recurring billing is a significant source of disputes in subscription-heavy industries.

• Forgotten subscriptions: Customers forget they signed up for automatic renewals and later claim the charges were unauthorized.
• Unclear cancellation policies: When canceling is complicated or hidden in fine print, frustrated customers often dispute charges instead of contacting support.

This makes subscription models especially vulnerable if not managed with explicit billing descriptors and simple cancellation processes.

Regulatory Restrictions

Due to government oversight and compliance challenges, specific industries are considered high-risk by default. CBD, nutraceuticals, adult services, firearms, and online gaming are examples of categories flagged automatically by processors. These sectors are subject to stricter regulations and frequent disputes, leading to closer scrutiny by banks and card networks. Due to their industry, even businesses operating within the law and maintaining strong customer practices remain more vulnerable to chargebacks.

The Cost of Chargebacks for High-Risk Merchants

Chargebacks cost more for high-risk merchants than standard businesses. The impact extends beyond refunded transactions, creating long-term financial and reputational damage.

1. Financial Costs

High-risk businesses face higher-than-average monetary consequences for each dispute. Chargeback handling fees generally fall between $20 and $100 per dispute, with merchants in higher-risk categories more likely to face fees near the upper end of that range.

• Total loss multiplier: Accounting for administrative labor, lost goods, penalties, and related costs, merchants typically incur a total loss of approximately $2.40 for every $1 lost to chargebacks.

• Reserves and monitoring programs: High-risk merchants are often subject to rolling reserves of approximately 5–10% of sales, which are held for around 90 to 180 days to safeguard against chargebacks and refunds.

2. Non-Financial Costs

The non-monetary effects of chargebacks can be even more damaging.

• Lost revenue and inventory: Disputed transactions strip merchants of product and payment, with no guarantee of recovery.
• Reputation damage: A high chargeback ratio erodes trust with acquiring banks and payment processors, leading to higher fees and reduced access to services.
• Account termination and MATCH listing: Excessive chargebacks can result in account termination and placement on the MATCH List, which restricts card processing access for up to five years.
• Operational burden: Managing disputes requires a significant allocation of staff time and resources. 76% of merchants report dedicating employees solely to chargeback management.
• Global losses: Fraudulent chargebacks alone are expected to cost businesses approximately $15 billion in 2025, and total global chargeback losses are projected to reach around $41.69 billion by 2028.

Chargeback Prevention Strategies

Implementing targeted tactics can dramatically reduce dispute rates. The following actionable strategies help high-risk merchants protect revenue and reduce chargeback volume.

1. Clear Billing Descriptors

Accurate billing names minimise customer confusion and prevent disputes.

• Ensure the “Doing Business As” (DBA) name matches your statement descriptor.
• Include contact details, such as a customer service number, so cardholders can contact you instead of initiating a chargeback.

Chargeback Gurus highlight that mismatched or unrecognisable descriptors frequently drive disputes.

2. Strong Refund & Return Policies

Easy, transparent return processes foster trust and reduce chargebacks:

• Clearly display your refund and return policies before purchase.
• A study shows that clear refund policies can reduce chargeback rates by 20–30%.

3. Fraud Prevention Tools

Layered fraud defenses help screen out threats before they escalate:

• 82% of merchants adopt the Address Verification Service (AVS), which is essential but should be combined with other controls.
• 3D Secure (3DS) shifts fraud liability for certain transactions. It helps prevent chargebacks tied to “fraud” reason codes, but not those related to friendly fraud.
• CVV checks, machine learning filters, device fingerprinting, fraud blocklists, and AI-powered analytics further strengthen protection.

4. Transparent Communication

Open, proactive communication can preempt many disputes:

• Send shipping and delivery notifications with tracking details.
• Be explicit about product/service terms, shipping timelines, and eligibility. Chargeback Gurus note that unclear billing or hidden subscription terms often lead to disputes.

5. Regular Monitoring of Chargeback Ratios

Maintain control by consistently tracking performance metrics:

• Maintain a chargeback-to-transaction ratio of under 1% to avoid reclassification or termination by acquirers.
• Between 2020 and 2021, merchants reduced their chargeback ratio by 21.6%, and revenue lost to chargebacks decreased by 39.4%, demonstrating the impact of ongoing monitoring.

Chargeback Management & Mitigation Tools

Even with preventive measures, some disputes are inevitable. Here’s how to manage them effectively:

1. Representment

This process involves resubmitting evidence to dispute a chargeback.

• Only around 21% of chargebacks worldwide are decided in favor of the merchant, but maintaining strong documentation and evidence can improve those odds.
• In 2024, the average global representment win rate was just 8.1%, though over half of large enterprise merchants won more than 50% of their challenged cases.”

2. Dispute Management Services

Outsourcing or leveraging automation can streamline responses and improve outcomes.

• Card networks have strengthened their ‘Compelling Evidence’ rules, like Visa’s CE 3.0, to help merchants effectively contest friendly-fraud chargebacks.
• Merchants using automated chargeback management tools have reported reductions in chargeback rates of up to 87%

3. Chargeback Alerts

Alerts notify you of triggered disputes, enabling immediate corrective action.

• Ethoca alerts prevent up to 57% of disputes.
• CDRN alerts can block around 41%.
• Visa’s RDR program stops 50–70% of chargebacks.

How Specialized Providers Help High-Risk Merchants?

High-risk businesses face unique hurdles, like frequent chargebacks, regulatory pressure, and account freezes. Specialized providers such as 2Accept deliver tailored solutions where mainstream processors fall short. Here’s how they stand out:

1. Fraud Monitoring & Chargeback Protection

Real-time fraud monitoring monitors suspicious activity and flags potential threats immediately. These systems often include address verification, chargeback alerts, and expert manual review. Chargeback protection tools include evidence templates and tailored dispute workflows, which speed up and make representation more effective and boost your chances of winning dispute cases. Automated alerts and dashboard insights help you act before minor issues escalate. This proactive model contrasts with mainstream platforms, which typically offer minimal fraud tools and limited dispute assistance.

2. White-Glove Support & Fast Onboarding

Dedicated account managers guide you through setup, risk navigation, and troubleshooting. This personal attention ensures high-risk businesses aren’t treated like low-risk clients. Most accounts are approved and live within 48 hours, compared to the weeks or months that standard processors may take, even if they approve you. 24/7 human support ensures rapid resolution of compliance queries, account holds, or urgent technical issues. Mainstream providers often rely on bots or support tickets, which can delay critical fixes.

3. Industry-Aware Compliance & Account Stability

2Accept supports industries often blocked by mainstream platforms, such as CBD, firearms, adult entertainment, subscriptions, nutraceuticals, and more. Compliance-first underwriting ensures your account isn’t shut down for minor discrepancies. It also helps structure your business to avoid blocklists like MATCH and reduce chargeback triggers.

4. Contrast with Mainstream Processors

The following is a breakdown:

• Industry restrictions: Platforms like Stripe or Square often refuse high-risk sectors outright or abruptly freeze accounts when perceived risk arises.
• Automated onboarding: Without manual underwriting, these systems rely solely on algorithms. This leads to frequent declines, extended delays, or a lack of clarity, particularly for merchants that require nuanced reviews.
• Minimal chargeback tools: Most mainstream processors offer little support during disputes. With limited guidance, you’ll manage evidence and declare representations independently.
• Generic support: Customer service often relies on scripted responses or is delayed, providing limited assistance when navigating regulatory or compliance issues specific to high-risk industries.

Frequently Asked Questions

What is the acceptable chargeback ratio?

Most payment processors and card networks set the acceptable chargeback ratio at less than 1% of total monthly transactions. For example, Visa considers merchants with a ratio above this level as “excessive,” which can trigger fines and monitoring programs. Staying below this threshold is critical because crossing it increases the risk of penalties, reserve requirements, or account termination.

Why are chargebacks more common in high-risk industries?

Chargebacks occur more frequently in high-risk industries because these sectors deal with higher fraud rates, recurring billing, and customer disputes. Online and cross-border transactions often attract fraudulent activity, while subscription-based businesses experience disputes when customers forget about recurring charges or find cancellation terms unclear. Additionally, industries such as travel, CBD, gaming, and nutraceuticals often face customer dissatisfaction from delayed deliveries or mismatched expectations, making them more prone to disputes.

Can high-risk merchants fight chargebacks?

High-risk merchants can fight chargebacks through a process known as representment. This involves resubmitting the disputed transaction with supporting documentation such as receipts, shipping confirmations, or customer communication records. If the evidence is strong, the chargeback can be reversed in the merchant’s favor. Many high-risk payment providers offer chargeback management services that help merchants build better documentation and improve their chances of winning disputes.

What happens if my chargeback ratio is too high?

When a merchant’s chargeback ratio becomes too high, payment processors may place the business on monitoring programs, such as Mastercard’s MATCH list, which restricts access to mainstream processors. Providers may also impose rolling reserves, holding back a percentage of funds to cover potential disputes, which reduces working capital. Additionally, high ratios typically result in increased processing fees, and in some cases, merchants may lose their accounts entirely.

How can I lower chargebacks quickly?

Reducing chargebacks requires transparency, fraud prevention, and customer-focused practices. Explicit billing descriptors ensure that customers recognize the charges on their statements, lowering accidental disputes. Offering fair and straightforward refund and return policies encourages customers to resolve issues directly, rather than contacting their bank. Fraud tools such as AVS, CVV verification, and 3D Secure help prevent unauthorized transactions. Finally, providing timely shipping updates and honest product descriptions builds trust and reduces dissatisfaction, which are key to keeping chargeback ratios within acceptable limits.

Take Control of Chargebacks and Protect Your High-Risk Business

Chargeback prevention is more than a safeguard; it is a survival strategy for high-risk merchants. As discussed, fraudulent transactions, recurring billing issues, and customer disputes can quickly escalate into financial losses, damaged reputations, and even account termination. The good news is that prevention and management tools are within reach. Clear billing practices, strong refund policies, and effective fraud detection technologies provide merchants with a solid foundation. Unlike mainstream processors, 2Accept focuses on long-term sustainability for merchants who face higher-than-average dispute risks. If you want to safeguard revenue and stabilize your payment processing, now is the time to act. Explore our dedicated Fraud and chargeback Services and learn how our High-Risk Merchant Accounts deliver the tools, expertise, and support needed to keep your business compliant and profitable. With 2Accept as your partner, chargebacks don’t have to threaten your growth; they can become a manageable part of your business strategy.