Reducing Chargebacks in High-Risk Industries

A chargeback happens when a cardholder disputes a transaction, and the issuing bank reverses the payment, pulling funds back from the merchant. While designed as consumer protection, chargebacks have become a significant business burden.

According to the Merchant Fraud Journal, chargebacks cost companies over $100 billion annually worldwide. Beyond direct financial losses, they damage reputations, increase processing fees, and threaten a merchant’s ability to maintain active payment accounts.

High-risk industries such as travel, subscription services, and digital goods face chargeback rates far above the average, often due to higher fraud exposure, unclear refund policies, or customer misunderstandings. In fact, e-commerce alone saw a 222% increase in chargebacks year over year, with travel and lodging among the most severely affected sectors.

This guide outlines proven strategies to reduce disputes, protect revenue, and foster stronger customer trust.

Why Chargebacks Are More Common in High-Risk Businesses?

Chargebacks don’t occur equally across industries. Businesses in CBD, online gaming, nutraceuticals, adult entertainment, and travel are often labeled “high-risk” because their transactions are more prone to disputes. Three main factors explain this trend:

• Processor scrutiny: Card networks, such as Visa and Mastercard, require merchants to maintain chargeback ratios below 1% of total transactions. High-risk industries are monitored more aggressively. For example, a CBD shop exceeding this threshold may have its funds frozen or account terminated much faster than a retail clothing store.
• Fraud exposure: Digital and resellable goods are prime targets for fraud. Gaming credits, adult content, and CBD supplements often attract unauthorized transactions. Friendly fraud exacerbates this issue, costing merchants approximately $2.40 for every $1 lost, once fees and lost goods are factored in.
• Recurring billing challenges: Subscription models in the nutraceutical and adult services industries frequently lead to disputes. Customers may forget they signed up or assume that cancellations were processed. Similarly, travel bookings often trigger chargebacks when plans change and refund policies are unclear.

The Cost of High Chargeback Ratios

The impact of excessive chargebacks extends far beyond the disputed amount. Businesses face both financial losses and long-term operational damage.

Financial impacts include:

• Chargeback fees: Merchants pay $20 to $100 per case, depending on the processor and account type.
• Higher rates and rolling reserves: Acquiring banks often increase processing fees to generate revenue and reserve funds to cover future disputes.
• True cost multiplier: Once marketing, shipping, and staff time are factored in, each chargeback typically costs 1.5–2.5 times the original transaction value.

Non-financial impacts are equally severe:

• Merchant account termination: Persistent chargebacks can cause acquiring banks to close accounts, leaving businesses unable to accept card payments. For example, a travel agency with a history of repeated disputes over canceled trips may lose its merchant account entirely.
• Reputational harm: High ratios damage trust with payment processors and banks, making it harder to negotiate favorable terms. Customers may also perceive frequent disputes as a sign of poor service.

The bottom line is that high chargeback ratios pose an immediate threat to revenue and long-term business survival.

Common Causes of Chargebacks in High-Risk Industries

Chargebacks don’t occur at random. Predictive patterns often trigger them, especially in industries already under scrutiny. Understanding the common causes is the first step toward developing more effective prevention strategies.

In high-risk industries such as CBD, gaming, nutraceuticals, adult entertainment, and travel, chargebacks can escalate more quickly due to higher fraud exposure, recurring billing models, and customer disputes.

Friendly Fraud & Customer Disputes

One of the most significant contributors to chargebacks in high-risk industries is friendly fraud, where legitimate customers dispute charges that they have already authorized. This often happens when:

• A customer forgets they subscribed to a service.
• Family members use a card without the primary holder’s knowledge.
• Customers regret purchases and claim they never authorized them.

Friendly fraud is not a minor issue. For example, a parent might discover their child has made hundreds of dollars in in-app purchases in online gaming. Rather than requesting a refund from the merchant, they call their bank. This dispute, while avoidable, still counts as a chargeback and raises the merchant’s overall ratio.

Misleading Billing Descriptors

Another frequent cause is that a charge appears on a customer’s statement. If the billing descriptor is vague or doesn’t match the brand name, customers may not recognize it and assume fraud. For instance, if a CBD company processes payments under a holding company’s name instead of the storefront brand, the descriptor might show “ABC Processing LLC” instead of “Premium CBD Shop.” This creates unnecessary suspicion, leading to disputes that could have been avoided with more transparent and more precise descriptors.

Recurring Billing Issues

Subscription-based billing is prevalent in the nutraceutical, streaming, and online services industries. While recurring models bring stable revenue, they also lead to disputes if cancellations are not processed smoothly. Customers often:

• Forget about ongoing subscriptions.
• Cancel late and expect not to be charged.
• Misinterpret the terms of “free trials” that roll into paid subscriptions.

Research from BillingPlatform found that recurring billing errors and disputes account for a significant portion of subscription-related chargebacks. An example can be seen in nutraceuticals offering “free trials.” Customers sign up, forget to cancel, and are charged full price the next month. Many people skip contacting the company and go straight to the bank, resulting in chargebacks.

Fraudulent Transactions

Other primary triggers are stolen credit card numbers, bot-driven attacks, and other triggers. High-risk merchants face heavier targeting because fraudsters perceive them as easier marks, especially when payment scrutiny is weaker.

• Across all sectors, merchants lose approximately $2.40 for every $1 disputed, accounting for fees, lost goods or services, and administrative efforts.
• In the adult industry, the anonymity of purchases makes fraud detection difficult. Stolen cardholders often dispute charges to avoid embarrassment, even if they authorized them.

Fraudulent transactions hurt revenue. They also put merchants at risk of being flagged by processors as unsafe, which can lead to account termination.

Proven Strategies to Reduce Chargebacks

Knowing the causes is essential, but preventing chargebacks requires a structured and proactive approach. High-risk merchants can’t eliminate disputes, but can reduce their frequency and impact. The following approaches address the most common root causes while helping build trust with customers and processors.

Use Clear Billing Descriptors

A clear billing descriptor ensures that customers can instantly recognize charges. Best practices include:

• Using the exact business or brand name that customers know.
• Including a phone number or website in the descriptor for quick reference.
• Avoid using abbreviations or legal entity names that differ from those on the storefront.

By implementing these adjustments, merchants can significantly reduce avoidable chargebacks. Visa emphasizes descriptor clarity as a top factor in lowering disputes, confirming its effectiveness for businesses in high-risk categories.

Transparent Refund & Return Policies

Many disputes escalate into chargebacks simply because customers don’t see a straightforward way to resolve issues directly with the merchant. A clear refund and return policy prevents this. Key practices include:

• Publishing policies prominently on websites and checkout pages.
• Sending policy reminders in email confirmations.
• We offer refunds promptly, rather than forcing customers to pursue the chargeback route.

The Better Business Bureau notes that transparent refund policies help build trust and reduce disputes that banks would otherwise handle. Clear policies can mean the difference between repeat customers and escalating chargebacks in industries like nutraceuticals, where auto-shipments are a standard practice.

Fraud Detection Tools

Fraudulent transactions are a significant cause of chargebacks, but modern tools allow merchants to block many before they happen. Standard fraud-prevention measures include:

• AVS (Address Verification System): Matches the billing address with the cardholder’s bank records.
• CVV checks: Ensures the buyer has the physical card.
• 3D Secure 2.0: Adds an extra authentication layer for online purchases.
• Velocity checks: Flags unusual purchase behavior, such as multiple-second transactions.

The Federal Trade Commission (FTC) recommends these approaches to minimize fraudulent activity, particularly in e-commerce sectors vulnerable to stolen card use.

Real-Time Alerts & Chargeback Mitigation Tools

Merchants who receive early warnings about disputes have a better chance of preventing chargebacks before they escalate. Real-time alert systems notify businesses when customers initiate a dispute, allowing them to issue refunds or provide clarifications directly. Visa’s Rapid Dispute Resolution (RDR) and Mastercard’s Ethoca Alerts are widely used tools that significantly reduce disputes.

Customer Communication Best Practices

Even in high-risk industries, strong communication can reduce misunderstandings that fuel chargebacks. Merchants should:

• Send email receipts immediately after purchase.
• Provide shipping updates with tracking links.
• Use proactive outreach if there are delivery delays
• Offer easy-to-reach customer support with short response times.

The Consumer Financial Protection Bureau (CFPB) emphasizes that transparency in communication fosters consumer trust and lowers dispute rates. For example, a travel agency that sends real-time updates about itinerary changes can prevent frustrated customers from disputing charges. Similarly, an adult content platform that provides discreet yet clear receipts can reduce embarrassment-driven chargebacks. High-risk industries like CBD, gaming, nutraceuticals, adult services, and travel face chargeback rates that are often two to three times higher than standard businesses. While friendly fraud, unclear billing, recurring billing disputes, and fraud-driven transactions are leading causes, the solutions are also clear. Merchants implementing strong billing descriptors, fair refund policies, fraud tools, real-time alerts, and consistent communication reduce chargebacks and strengthen their reputation with processors. In a climate where Visa and Mastercard maintain strict thresholds, businesses that fail to manage chargebacks effectively risk incurring higher fees, increased reserve requirements, and potential account termination. High-risk merchants can safeguard revenue and customer trust by adopting proactive strategies grounded in proven practices and supported by reliable data.

Industry-Specific Chargeback Prevention Tips

Chargebacks affect industries differently. A prevention strategy that works well for one sector may not be suitable for another. Below are industry-specific recommendations that directly address the leading causes of disputes in each high-risk category.

1. Travel & Hospitality

The travel and hospitality sector experiences one of the highest chargeback rates, averaging 0.89% of transactions. Causes include last-minute cancellations, service dissatisfaction, and fraud. Key steps to minimize chargebacks:

• Flexible cancellation policies reduce disputes by giving customers options. Offering credits or the ability to reschedule instead of outright non-refundable cancellations prevents escalations.
• Proactive communication through booking confirmations, reminders, and itinerary updates ensures customers are informed about every stage of service. This reduces misunderstandings.
• Verification of bookings is critical. Airlines lose annual revenue due to fraud, equating to nearly $1 billion globally. Strong verification processes protect revenue while reducing unauthorized transactions.
• Detailed service documentation, including digital check-in confirmations and proof of service delivery, provides evidence in the event of disputes.

For businesses in this sector, accurately documenting and sharing information at every step is as crucial as the service itself.

2. CBD & Nutraceuticals

CBD and nutraceutical businesses face heightened chargeback risks due to regulatory complexity, skepticism about product claims, and recurring subscription models. Recommended approaches:

• Transparent product labeling helps avoid disputes tied to misleading or incomplete descriptions. Labels should include dosage, ingredients, and disclaimers that comply with regulations.
• Clear trial and subscription terms must be presented at checkout. Customers should be able to view pricing, renewal intervals, cancellation deadlines, and easily access unsubscribe methods. Lack of transparency in recurring billing is one of the leading causes of disputes in this sector.
• Documentation of consent through electronic checkboxes or e-signatures ensures evidence that the buyer knowingly agreed to subscription terms.
• Customer education through FAQ pages, product guides, and support lines helps reduce disputes caused by unrealistic expectations or misunderstandings.

These businesses can build trust and reduce avoidable chargebacks by setting realistic expectations and emphasizing transparency.

3. Gaming & Digital Goods

Digital goods and gaming merchants deal with some of the highest chargeback rates, averaging 1.5%–2.5% of all transactions. Common causes include friendly fraud, unauthorized transactions, and claims of non-delivery. Best practices include:

• Fraud filters and velocity checks help flag abnormal purchase behavior, such as repeated transactions within short time frames or using multiple cards on one account.
• Strong customer authentication (AVS, CVV verification, 3D Secure 2.0) provides an additional layer of validation, which is particularly important for instant digital delivery.
• Tracking and digital proof of delivery can be implemented via login records, IP address logs, or timestamps showing when the digital product was accessed.
• Account activity monitoring prevents friendly fraud.

Merchants who integrate these safeguards significantly reduce the likelihood of unauthorized disputes.

4. Adult Content & Subscription Sites

Adult content platforms and subscription services face unique challenges, including chargebacks driven by embarrassment and a lack of clarity in billing descriptors. Effective prevention measures:

• Discreet yet accurate billing descriptors are essential. Instead of generic terms like “XYZ LLC,” a merchant can use descriptors such as “Premium Media Service” that identify the purchase without being explicit.
• Clear and accessible refund policies help customers resolve dissatisfaction without needing to file disputes. Even a simplified FAQ outlining refund timelines and conditions can reduce chargebacks.
• Subscription clarity is critical. Billing intervals, renewal notifications, and easy cancellation methods ensure customers are not surprised by charges.
• 24/7 customer service availability through chat or email gives users discreet resolution options, minimizing the risk of disputes.

By striking a balance between discretion and transparency, subscription-based services can maintain customer trust and ensure revenue stability.

The Role of Payment Processors in Reducing Chargebacks

While merchants can reduce disputes through clear communication and transparency, the role of a payment processor is equally vital. The right processor can provide the tools and support necessary to prevent and actively manage chargebacks.

Specialized High-Risk Processors

Providers such as 2Accept are built for high-risk industries. They offer:

• Advanced monitoring tools and fraud filters that detect suspicious transactions before they are approved. This includes real-time velocity limits, IP checks, and behavioral analysis.
• Chargeback management services that flag disputes early and automate responses with supporting evidence.
• Higher tolerance thresholds for chargeback ratios compared to mainstream providers. Many standard processors close accounts if chargebacks exceed 1%, while specialized providers design solutions around industry averages.
• Compliance and data security through tokenization, encryption, and alignment with PCI DSS standards.

Limitations of Mainstream Providers

Mainstream processors, such as PayPal, Stripe, and Square, typically cater to low-risk merchants. Their limitations include:

• Strict chargeback thresholds often result in the freezing or termination of accounts that exceed 1%.
• Generic fraud prevention systems are insufficient for industries with higher exposure to disputes.
• Limited dispute support, where merchants must manage evidence collection and responses independently.

Merchant Experience Example

High-risk merchants often switch providers after experiencing disruptions with mainstream platforms. A documented case in the supplements industry highlights how switching to a high-risk processor resulted in faster payouts, specialized fraud screening, and better long-term stability. Choosing a specialized provider like 2Accept ensures businesses have a reliable payment gateway and a partner experienced in dispute resolution and fraud prevention. This approach minimizes revenue losses and keeps merchants compliant with industry requirements. Chargeback prevention is not a one-size-fits-all process. Travel and hospitality require stronger verification and communication. CBD and nutraceuticals rely on transparency in labeling and subscriptions. Gaming and digital goods need advanced fraud detection, while adult subscription sites benefit from discreet billing and responsive customer support. At the same time, the choice of a payment processor can significantly impact the effectiveness of these strategies. High-risk specialists like 2Accept provide the fraud tools, compliance expertise, and dispute management resources that mainstream processors lack. For businesses in high-risk sectors, aligning with such a partner is a safeguard and a strategic advantage.

Frequently Asked Questions

What is an acceptable chargeback ratio?

Most payment processors and card networks consider a chargeback ratio of under 1% of total transactions to be acceptable. According to Visa’s dispute monitoring program, merchants exceeding this threshold risk penalties and increased scrutiny. Staying below 1% prevents fines and helps preserve merchant account stability.

Can chargebacks shut down my merchant account?

Yes. Your payment processor may terminate your account if your chargeback ratio consistently exceeds card network thresholds. Once shut down, obtaining approval for a new account can be challenging, especially in high-risk industries. Termination often forces businesses into the MATCH list (Member Alert to Control High-Risk Merchants), which flags merchants across the sector and severely limits processing options.

What’s the fastest way to reduce chargebacks?

The quickest steps involve using explicit billing descriptors and offering straightforward refund policies. When customers recognize charges on their statements and have easy ways to resolve disputes directly with you, they are less likely to initiate chargebacks. Many businesses experience immediate reductions in costs when billing clarity is improved and refund processes are simplified.

Do fraud tools really prevent chargebacks?

Yes. Fraud detection tools, such as Address Verification Service (AVS), CVV matching, 3D Secure authentication, and velocity checks, have been proven to reduce fraudulent transactions. For example, Visa Secure (3D Secure 2.0) adds an authentication layer that removes merchants’ liability in many fraud cases.

Can ACH/eCheck reduce chargebacks?

Yes. ACH and eCheck payments generally have lower dispute rates compared to credit card payments. While disputes still exist, the ACH dispute process is more limited and often favors the merchant. For businesses in high-risk industries, offering ACH/eCheck as an alternative can diversify payment options and reduce reliance on card networks, lowering overall chargeback exposure.

How do big companies deal with chargebacks?

Big companies manage chargebacks through advanced fraud detection systems, transaction monitoring, and strong verification measures. They also maintain specialized teams to dispute invalid claims, negotiate with banks, and recover lost revenue whenever possible.

Why are companies afraid of chargebacks?

Chargebacks create financial risks because each dispute can result in lost sales, penalty fees, and higher processing costs. If chargeback ratios rise too high, companies may even lose their ability to process payments, making them a serious threat to business stability.

Do chargebacks affect companies?

Yes, chargebacks can have a major impact by cutting into profits, increasing administrative workload, and raising the risk of account termination from payment processors. They can also harm a company’s reputation and customer trust over time.

Take Control of Chargebacks and Protect Your Business Today

Preventing chargebacks is not just about reducing financial losses. For high-risk merchants, protecting long-term business stability, maintaining payment processing privileges, and safeguarding reputation are key priorities. As we’ve explored throughout this guide, the causes of chargebacks vary, from friendly fraud and unclear billing descriptors to recurring billing issues and fraudulent transactions. Merchants can significantly reduce disputes and strengthen customer relationships by implementing proven strategies, such as explicit billing descriptors, transparent refund policies, advanced fraud detection, and leveraging industry-specific prevention tactics. Specialized providers such as 2accept offer proactive monitoring, robust fraud tools, and personalized support to keep your business compliant and secure. If you are ready to minimize risks and focus on growth, explore our tailored solutions through our Fraud & Chargeback Services and High-Risk Merchant Accounts. With 2accept by your side, you can stay ahead of chargebacks and protect the future of your business.