Key Takeaways
- Growing Threat: Chargebacks are becoming more common as digital payments grow across Singapore, making payment risk a real concern for merchants of all sizes.
- Beyond the Fee: The true cost of a chargeback goes well beyond the disputed amount, covering processing fees, lost inventory, and the time spent gathering evidence to fight disputes.
- Friendly Fraud Factor: Not all chargebacks come from stolen cards. A significant portion stems from customers disputing legitimate purchases, a type of payment fraud that is difficult to detect.
- Regulation Awareness: Singapore’s Payment Services Act and MAS guidelines set expectations for fair dispute resolution, and staying compliant helps reduce exposure to chargebacks.
A customer purchases a product from your online store, receives it, and then informs their bank that the item never arrived. The bank reverses the transaction. You are left absorbing the cost of the product, shipping, and an additional chargeback fee.
This is not an uncommon scenario. Chargebacks, which are essentially forced transaction reversals, represent a growing payment risk for businesses that accept card payments or digital wallets across Singapore. As more transactions move online, the volume of disputes continues to rise.
Understanding what drives chargebacks, how they affect your bottom line, and what steps you can take to reduce them is becoming an essential part of running a business in Singapore’s digital economy.
Why Chargebacks Are a Growing Risk for Singapore Merchants
Singapore’s digital payments ecosystem has expanded significantly in recent years. Mobile wallet adoption continues to climb, QR code payments are becoming the norm, and more consumers are purchasing through social media platforms.
While this growth presents opportunity, it also widens the surface area for payment disputes. A growing number of businesses across the region have reported a rise in fraud attempts, many of which result in chargebacks. These can be triggered by:
- Unauthorised use of stolen card details
- Customers not recognising a charge on their statement
- Disputes over products that were not delivered or not as described
- Subscription renewals that were forgotten or overlooked
For small businesses and startups operating on tight margins, even a handful of chargebacks per month can create noticeable cash flow disruption. What makes this a significant payment risk is that it often catches merchants off guard, particularly those scaling quickly and processing higher transaction volumes.
Friendly Fraud: The Hidden Driver Behind Rising Disputes
Not every chargeback stems from a stolen card or a genuine error. A growing share of disputes falls under what the industry refers to as friendly fraud (also known as first-party fraud). This occurs when a customer completes a legitimate purchase, receives the product or service, and then files a dispute with their bank claiming otherwise.
In some cases, it is intentional. In others, the customer simply does not recognise the charge on their statement or has forgotten about a subscription renewal. Regardless of the reason, the merchant bears the cost of the payment fraud dispute and the burden of contesting it.
Friendly fraud is widely recognised as one of the fastest-growing types of payment disputes globally, and Singapore is no exception. Common triggers include:
- Buyers experiencing regret after a purchase
- Unclear billing descriptors that confuse cardholders
- Subscriptions or recurring charges that the customer forgot about
- Customers opting to dispute through their bank rather than requesting a refund from the merchant
What makes friendly fraud particularly challenging is that the customer used their own card, which means standard fraud detection tools may not flag it. For merchants, this means transaction-level fraud filters alone are not sufficient.
What Chargebacks Actually Cost Your Business
The disputed transaction amount is only part of the picture. Each chargeback carries several layers of cost that can add up quickly:
- Processing fees: Your payment provider typically charges a fee per chargeback, regardless of the outcome.
- Lost inventory: If a physical product has already been shipped, it is unlikely to be returned.
- Operational time: Your team must gather receipts, delivery confirmations, and communication logs to contest the dispute.
- Revenue impact: The total cost of a single chargeback can amount to several times the original transaction value once all factors are accounted for.
For a business processing hundreds of orders a month, the cumulative effect is substantial.
There is also a longer-term consequence to consider. If your chargeback ratio exceeds the thresholds set by card networks such as Visa or Mastercard, you could face higher processing fees or, in more serious cases, lose the ability to accept card payments entirely. That is a payment risk no online merchant can afford to overlook.
Singapore’s Regulatory Landscape: What Merchants Should Know
The Payment Services Act 2019 (PSA) is Singapore’s primary regulatory framework for payment service providers. Administered by the Monetary Authority of Singapore (MAS), it requires licensed providers to maintain fair dispute resolution processes and uphold consumer protection standards.
MAS has also issued the E-Payments User Protection Guidelines, which outline the responsibilities of both financial institutions and account holders regarding unauthorised transactions. Key areas covered include:
- Liability allocation between financial institutions and account holders
- Notification duties for unauthorised or erroneous transactions
- Resolution timelines for disputes involving protected accounts
For merchants, the practical takeaway is straightforward: regulators expect clear communication, transparent billing practices, and a proper process for handling disputes. Having these measures in place does not just ensure compliance. It also reduces the likelihood that customers will bypass your support channels and go directly to their bank.
It is also worth noting that local payment methods such as PayNow and NETS follow their own dispute processes, which differ from traditional card scheme chargebacks. Merchants who accept multiple payment types should familiarise themselves with the resolution timelines for each.
Practical Ways to Reduce Chargeback Risk
Chargebacks cannot be eliminated entirely, but they can be reduced significantly. Below are several steps merchants can take to lower their exposure.
Make Your Billing Descriptor Clear
One of the simplest fixes is ensuring your business name appears clearly on your customer’s bank statement. A vague or unfamiliar descriptor is one of the most common reasons customers dispute transactions they actually made.
Use 3D Secure and CVV Verification
Adding an extra layer of authentication, such as 3D Secure (3DS), makes it more difficult for unauthorised users to complete a transaction. In Singapore, the 3DS protocol is widely supported by major card issuers and serves as an additional checkpoint before the payment is processed.
Ship With Tracking and Keep Records
For physical goods, always use tracked delivery. Retain proof of shipping, delivery confirmations, and any customer correspondence. These records become critical evidence if a chargeback is filed.
Make Refund Policies Easy to Find
If customers cannot easily locate or understand your refund process, they are more likely to go directly to their bank. Display your return and refund policy prominently, ideally on the checkout page, and keep the process straightforward.
Partner With the Right Payment Platform
Your choice of payment infrastructure plays a significant role. A reliable online payment platform should offer built-in fraud detection, real-time transaction monitoring, and tools to quickly respond to disputes. These features help reduce payment risk before it escalates into a chargeback.
Don’t Let Chargebacks Chip Away at Your Growth
Chargebacks are not going away. As digital payments continue to expand in Singapore, the volume of disputes will grow alongside them. However, the merchants who approach this proactively, by understanding the risks, maintaining compliance, and investing in the right tools, are the ones best positioned to protect their revenue.
Razorpay’s online payment platform is designed to help Singapore businesses manage transactions securely, with fraud detection tools and real-time monitoring that help reduce payment fraud disputes. Whether you are a startup processing your first hundred orders or an established SME scaling operations, having the right payment technology in place makes a meaningful difference.
FAQs
What is a chargeback and how does it affect my business?
A chargeback is a forced transaction reversal initiated by a customer’s bank. For merchants, it means lost revenue, processing fees, and potential penalties if dispute rates stay high.
Why do chargebacks happen?
Common causes include unauthorised card use, billing errors, undelivered goods, unclear refund policies, and payment fraud activity such as stolen card details or friendly fraud.
Can a customer file a chargeback on a legitimate purchase?
Yes. This is known as friendly fraud. It is a growing type of payment fraud that is difficult to detect because the cardholder used their own card.
How can I protect my business from chargebacks?
Use clear billing descriptors, enable 3D Secure, ship with tracking, display refund policies prominently, and use a reliable online payment platform with fraud detection tools. Razorpay, for example, offers real-time monitoring to help merchants reduce disputes.
Is there a time limit for customers to file a chargeback?
Most card networks allow chargebacks within 120 days of the transaction, though timelines vary by issuing bank. Early documentation helps merchants manage payment risk and respond within deadlines.
