Payments are about more than money
In the digital marketplace, payments are about more than just moving money from A to B – they’re about trust. Customers expect smooth, transparent experiences when they buy online, and any disruption can damage their confidence in your brand.
Among the most disruptive issues for online platforms are chargebacks and refunds. Understanding the difference between the two – and how to manage them effectively – can mean the difference between building a loyal customer base and losing revenue.
What exactly is a chargeback?
A chargeback occurs when a customer escalates a dispute over a card transaction to their bank, even if they may have already contacted the merchant.
For the customer, a successful chargeback looks simple: their money is returned quickly, with little effort required. For the merchant, however, the picture is very different. Funds are pulled from their account until the dispute is resolved, often leaving them to absorb fees, handle administrative work, and deal with potential reputational damage.
The cost to merchants
Every chargeback carries a cost beyond the lost sale itself. In the UK, the acquiring bank’s fee for a chargeback is commonly £15–£25 or more, while globally, fees often range from $10–$50 per case. For digital platforms operating at scale, these costs add up quickly.
But the financial hit is only part of the story. Too many chargebacks can flag a business as “high risk,” disrupt payment flows, and even limit a merchant’s ability to process payments in the future. For subscription businesses, marketplaces, and other digital-first platforms, the stakes are particularly high.
Refunds vs. Chargebacks (and where reversals fits in)
At first glance, refunds and chargebacks may look similar – both involve returning money to a customer – but the mechanics and consequences are very different.
- Refunds are initiated by the merchant and resolved directly with the customer. They’re often seen as good customer service and can even strengthen trust.
- Chargebacks are handled through the card provider, forcing the dispute into the formal payments process rather than leaving it to direct resolution with the merchant.
By encouraging refunds over chargebacks, merchants can maintain control of the customer relationship, protect brand reputation, and reduce unnecessary costs.
Why customers choose chargebacks
Most customers don’t set out intending to file a chargeback. They usually turn to their bank when they feel they have no other choice – when refund policies are unclear, when support is hard to reach, or when they suspect fraud.
In other words, chargebacks are often a symptom of lost trust. Businesses that prioritise clear pricing, simple refund policies, and responsive customer support make it far less likely that customers will escalate disputes to their bank.
Preventing chargebacks: Building trust first
While chargebacks can’t be eliminated entirely, many are preventable. Digital platforms can reduce them by focusing on a few core practices:
- Transparent pricing: Ensure customers always know what they’re paying for.
- Accessible support: Offer quick, easy-to-reach customer service channels.
- Fair refund policies: Make refunds simple, so customers don’t feel forced to contact their bank.
- Clear communications: Use clear billing descriptors and confirmation emails to avoid confusion.
Together, these practices help businesses reduce chargebacks while building the trust that drives long-term loyalty and repeat business.
Why payment partners matter
Managing chargebacks and refunds isn’t just about policies – it’s about having the right payment infrastructure in place. A strong payment partner provides the reliability and efficiency businesses need to keep operations running smoothly. Reliable processing reduces technical failures that frustrate customers, while efficient settlement cycles improve cash flow and give businesses quicker access to revenue.
Equally important is compliance. Disputes and chargebacks must be managed in line with regulatory requirements, and the right partner ensures that processes are both secure and compliant across markets. Transparency also plays a role: clear reporting and easy-to-access data give merchants visibility into disputes, refunds, and settlements, making it easier to manage customer relationships and financial planning.
Without this foundation, even the best customer service policies can fall short. That’s why the choice of payment partner is not just operational – it’s strategic.
Where The Payments Factory fits
At The Payments Factory, we help digital businesses reduce friction, improve reliability, and protect customer trust across the payment journey.
- Regulatory trust: As a UK-regulated Electronic Money Institution (EMI) with expanding European coverage, we provide a compliance-first foundation that businesses can rely on.
- Transparent value: Our clear, predictable pricing protects margins and avoids the hidden costs that often fuel disputes.
- Efficient settlement cycles: Faster access to funds means businesses can manage cash flow without unnecessary delays.
- Infrastructure strength: Developer-friendly APIs and smooth integrations make it easier to track, manage, and reconcile transactions – including refunds.
- Cross-border capability: Multi-currency support helps subscription and platform businesses expand globally while reducing friction in recurring payments.
By combining transparency, efficiency, and compliance, TPF helps digital platforms handle disputes more effectively while strengthening customer trust.
Conclusion
Chargebacks may never disappear entirely, but how your business manages them makes all the difference. By encouraging refunds, prioritising transparency, and working with a trusted payment partner, online platforms can turn potential disputes into opportunities to reinforce loyalty.
At The Payments Factory, we provide the infrastructure to help digital businesses scale with confidence – reducing payment friction, protecting margins, and supporting customer trust across every transaction.
Ready to simplify how you manage chargebacks and refunds? Talk to our team today and discover how The Payments Factory can support your growth.