The booming CBD market offers significant opportunities but also unique payment challenges. In e-commerce, a chargeback occurs when a cardholder disputes a charge and the issuing bank reverses the payment.

For CBD merchants, who are often labeled as high-risk by banks due to evolving regulations and product misconceptions, chargebacks pose a serious concern. Each chargeback costs not only lost revenue, but hefty fees and potentially frozen reserves. Visa and Mastercard closely monitor dispute rates; excessive chargebacks (e.g., Visa’s 0.9% monthly threshold) can trigger fines and even account termination. In this article, learn how to handle chargebacks when selling CBD products online.

Understand the Causes of Chargebacks

Chargebacks usually stem from fraud or customer dissatisfaction. Customers may file a chargeback if they don’t recognize a charge (due to forgotten purchases or unclear billing names), if an item never arrives, or to bypass a complicated returns process. Disputes often arise when customers believe a charge is fraudulent or use it as an excuse to avoid returning an item.

In the CBD space specifically, these issues are amplified. Many buyers are wary or confused about hemp-derived products. Misunderstandings about CBD’s legality or effects, unclear labeling or exaggerated claims, and failures to meet customer expectations (e.g., delayed shipping or incorrect dosage) all lead to disputes.

Subscription billing errors (forgetting to cancel or being charged after a delay) are another common trigger. Understanding fraud, friendly fraud, delivery issues, and product confusion enables you to target prevention strategies more effectively.

Know the Rules of Your Payment Processor

CBD sellers must strictly follow both card network policies and their processor’s terms. Visa, Mastercard, and AmEx classify CBD as a high-risk category: non-compliance (e.g., THC over 0.3%, unapproved health claims) can violate network rules and lead to blacklisting. Many mainstream processors outright ban CBD transactions.

PayPal will not work with CBD businesses, and even platforms that allow it (like Shopify Payments) can freeze or drop high-risk accounts without notice. Traditional banks remain “hesitant” about CBD, noting that chargeback fears and regulatory uncertainty make obtaining a payment partner difficult.

You must also be familiar with the terms of your merchant agreement. For each chargeback, processors typically charge a fee ($25-$ 100 or more) and may hold the funds pending resolution. Critically, Visa generally allows 30 days (per dispute stage) for a merchant to respond, but your acquirer might impose a much shorter deadline (often just 5-10 days).

Mastercard usually allows 45 days per stage. Missing these deadlines means losing the chance to defend the charge. Finally, stay aware of chargeback thresholds: exceeding 0.9% (Visa) or 1% (Mastercard) will trigger warnings and escalating penalties. Read your processor’s policy carefully to know precisely how many disputes you can incur and what fees or reserve requirements apply.

Strengthen Upfront Practices to Reduce Chargebacks

Strong prevention tactics can significantly reduce chargebacks by fostering transparency and trust throughout the customer journey. Begin with clear product descriptions that accurately detail the CBD content, dosage guidelines, and legally required disclaimers, while avoiding exaggerated health claims. When customers know exactly what they are purchasing, confusion and disputes are far less likely.

Equally important is a transparent refund and cancellation policy. Display easy-to-find, straightforward instructions on your website and at checkout so customers can request returns or refunds directly, rather than turning to their bank. A recognizable billing descriptor also helps: customize the statement descriptor to include your brand name and contact details, ensuring buyers can identify the charge and contact you with questions instead of filing a dispute.

If you offer subscriptions or automatic shipments, simplify subscription management by allowing customers to skip, pause, or cancel with ease. Send billing reminders and provide clear opt-out options to prevent misunderstandings that lead to “cancelled recurring transaction” chargebacks.

Strong customer service further reinforces prevention. Offer multiple support channels, email, phone, and chat, and respond promptly with order confirmations, shipping updates, and tracking details. Quick resolutions and proactive communication often result in a direct refund, which is preferable to a chargeback. Finally, streamline the returns process by making it as effortless as possible. Provide free return labels when feasible and issue refunds quickly so customers feel confident about resolving issues without resorting to disputes.

Maintain Strong Documentation

When disputes arise, thorough documentation becomes your strongest line of defense. Maintain comprehensive transaction records, including receipts, order confirmations, payment logs, invoices, and credit or debit card slips, ensuring they are easily retrievable and organized. Always secure proof of shipment and delivery, such as tracking numbers, courier confirmations, and delivery photos or signatures, to verify that orders were sent and received as promised.

Keep detailed records of all customer communications, including emails, chat transcripts, and phone call notes, as these can demonstrate how issues were addressed and whether refund or resolution options were offered. It is equally important to preserve evidence of agreements and consents, like a copy of your website’s terms of service and a timestamp showing when a customer checked the “I agree” box at checkout.

Maintain product information, including original product listings, lab reports, and Certificates of Analysis (COAs) for each batch sold, to confirm that items were accurately described and safe. Finally, log every refund, cancellation, and customer-service action taken. This comprehensive and well-organized documentation provides robust evidence to counter chargeback claims and helps safeguard your business in the event of disputes.

Dispute Chargebacks Effectively

When you receive a chargeback notification, act quickly and strategically:

• Assess the Claim: Review the issuer’s chargeback reason code immediately. It explains why the customer disputed the transaction (e.g., fraud, services not rendered, “not as described,” etc.). This determines what evidence you need.
• Contact the Buyer: In many cases, reaching out to the customer can resolve the issue. A friendly call or email can clear up misunderstandings or persuade them to withdraw the dispute. Many chargeback situations can be handled by contacting the customer directly; you might end up refunding them anyway, but even if that’s the outcome, a refund is better for your business than a chargeback.
• Gather Compelling Evidence: If the dispute is likely to proceed, prepare a strong rebuttal packet. Include: order details, transaction receipts, proof of delivery (tracking reports or signed delivery slips), the product description (to show the item matched what was advertised), and the customer’s signed T&C if applicable. Also, include any email/chat correspondence that shows the customer was satisfied or had already been offered a refund. Your goal is to convince the bank that the charge was valid.
• Submit Your Representation Quickly: File your dispute with the acquirer before the deadline (typically within 7-30 days of notification). Per Visa’s rules, you have up to 30 days, but processors often allocate just 5-10 days of that to you. Missing the deadline means you lose by default. Ensure you meet your processor’s timeline to supply the evidence packet.
• Evaluate the Cost vs. Reward: Not all chargebacks are worth fighting. Only challenge those cases where your evidence is strong. Fighting clearly invalid disputes (with signed receipts and accepted terms) is worthwhile because winning legitimate chargebacks helps protect the health of your merchant account. If a dispute is weak (e.g., involving a small amount or limited evidence), it may be more cost-effective to refund the customer and maintain account goodwill.

Handle Chargebacks: Use Fraud Prevention Tools

Invest in anti-fraud measures to keep questionable transactions from becoming chargebacks:

1. Address and CVV Verification:

Require that the billing address (AVS) and CVV code match the card data. Enabling AVS/CVV checks significantly reduces the risk of unauthorized transactions. Many fraudsters cannot provide the correct CVV or address.

1. 3D Secure Authentication:

Use services like 3D Secure (e.g., Visa Secure, Mastercard Identity Check) for an extra verification step (one-time password to the cardholder). This shifts liability for certain types of fraud cases to the issuer, helping to prevent the use of stolen cards.

1. KYC and Geo-Fraud Checks:

Verify customer identity as needed (age verification, ID checks, residency restrictions). Also, check for suspicious location mismatches, such as multiple orders billing to one country but shipping elsewhere, or high-value orders from geographies with known fraud spikes.

1. Real-Time Transaction Monitoring:

Set up alerts for unusual patterns, such as large orders, multiple purchases from the same IP address, or inconsistent geographical data. Many payment gateways offer built-in fraud filters that can automatically hold or review transactions matching these risk patterns.

1. Order and Velocity Limits:

Impose limits on order value or frequency. Block transactions exceeding a specific dollar amount or from new customers until they are manually reviewed and approved. Also use “velocity” rules (e.g., more than three orders on one card in 24 hours) to detect rapid fraud attempts.

1. Chargeback Alerts and Scoring:

Consider a service or processor feature that provides chargeback alerts and notifications when a dispute is filed. This early warning lets you react (offer a refund) before the bank completes the chargeback.

Also, use fraud-scoring systems, which assign a risk score to each transaction using machine learning. If your current gateway lacks these tools, upgrading to one that offers them can be beneficial. Early detection tools help merchants block suspicious activity proactively.

1. Advanced Fraud Tools:

Some providers offer AI-powered fraud prevention that analyzes hundreds of data points in real time. These systems analyze behavioral signals, device data, proxy usage, and other factors to flag high-risk orders promptly.

Monitor Your Chargeback Ratio

Keep a close eye on your dispute-to-sales ratio. Most card networks and acquirers track this metric:

• Know Your Thresholds: Visa’s standard chargeback threshold is 0.9% of total transactions (or 100 disputes per month). Mastercard’s is roughly 1%. Exceeding these triggers results in enrollment in Visa’s Dispute Monitoring Program. Early breaches receive warnings; continued violations can result in fines (e.g., $50 per chargeback) or termination.
• Use Reporting Tools: Regularly calculate your chargeback ratio (your gateway dashboard or processor portal may show this automatically). A rising trend is an early warning. If your processor offers real-time dispute dashboards or analytics, use them to track claim reasons and identify problem products or customers.
• React Quickly: If your ratio approaches the threshold, immediately implement mitigation steps (e.g., pause certain products, tighten fraud filters, offer refunds proactively, or throttle risky traffic). Visa’s program typically provides a four-month grace period to correct issues, but it’s best not to push that limit.
• Multi-Account Strategy: Some high-risk CBD processors split volume across multiple merchant accounts (multi-bank processing). By distributing transactions, each account’s ratio stays lower.

Staying well below these ratios isn’t just about avoiding fines; it keeps your processing privileges. Exceeding thresholds can lead an acquirer to freeze or terminate your account to protect itself. Therefore, continuous monitoring is essential in a high-risk business like CBD.

Work With a Processor Experienced in CBD

Choosing the right payment partner is crucial. Seek a processor specializing in CBD and other high-risk industries:

• Regulatory Expertise: A seasoned CBD processor understands federal and state hemp laws. They’ll ensure your products and marketing materials comply (e.g., verifying THC limits, requiring lab certificates) so you don’t get penalized for simple mistakes.
• Customized Risk Management: High-risk CBD processors build in fraud prevention and chargeback tools by default. Many offer chargeback alert services, 24/7 fraud monitoring, and expert support when disputes arise.
• Competitive Pricing & Terms: While fees are generally higher than standard retail, a good CBD processor will tailor pricing to your needs. They may offer flexible reserves, rolling reserves, or volume-based discounts once you build a low chargeback history.
• Multiple Banking Partners: Specialized CBD processors often have networks of acquiring banks. This means if one issuer cuts you off, they can route around it. It also allows multi-bank processing (see above) to help your dispute ratio.
• Comprehensive Onboarding: These processors typically guide you through the documentation requirements. For CBD, this often involves providing company registrations, IDs, bank statements, as well as product COAs and compliance attestations. This upfront work reduces surprises later.
• Ongoing Support: Finally, work with a provider that offers responsive customer service. When a chargeback happens, you’ll want prompt assistance in preparing your response. Some CBD-friendly processors even have chargeback specialists on staff.

Conclusion

Chargebacks are an unavoidable reality in CBD e-commerce, but with the right systems, they need not cripple your business. By understanding why chargebacks occur and rigorously applying prevention tactics (clear communication, transparent policies, secure payments), you can minimize disputes and protect revenue. Keep detailed records and respond to every disagreement with evidence; use fraud-detection tools and customer-friendly practices to stay below industry thresholds.

By focusing on clear communication, robust payment infrastructure, responsive customer service, and strategic dispute management, CBD merchants can minimize financial losses and maintain a strong standing with merchant processing services. With a proactive approach and an experienced payment partner, CBD sellers can handle chargebacks effectively and build a resilient, compliant business.

Frequently Asked Questions

Why are chargebacks more common for CBD businesses?

CBD is considered a high-risk category due to regulatory uncertainties and product misconceptions. Customers may dispute charges due to shipping delays, unclear labeling, or confusion over the legality of the transaction, which increases chargeback risks.

How can I reduce chargebacks before they happen?

Provide clear product descriptions, accurate CBD content, and easy-to-find refund/cancellation policies. Use a recognizable billing name and send order/shipping updates so customers contact you first, rather than their bank.

What should I do when I receive a chargeback?

Act fast. Review the reason code, contact the buyer to resolve the issue if possible, and submit strong evidence, such as receipts, shipping proof, and signed terms, within your processor’s deadline (typically 5-10 days).

Which payment processors are best for CBD merchants?

Choose a processor experienced with CBD and other high-risk industries. They know card-network rules, provide fraud prevention tools, and help you stay within Visa’s (0.9%) and Mastercard’s (1%) dispute thresholds.

What records help me fight chargebacks successfully?

Maintain organized documentation, including order confirmations, tracking details, customer communications, refund records, and Certificates of Analysis. Complete evidence strengthens your case and protects your merchant account.