What is a chargeback?

A chargeback is a dispute filed by a customer (player) with their bank or credit card provider for a specific charge. In gaming, chargebacks can happen when a player doesn’t recognize a purchase, or if they paid for an in-app purchase that they didn’t receive in-game. There are also more malicious causes for chargebacks in gaming, which we’ll get into later.

Chargebacks vs. refunds

In the world of player transactions and payments, chargebacks and refunds can often get confused - but there are actually significant differences between the two.  With a refund, the game studio controls the funds and initiates the process - the dispute is only between the studio and the player, rather than an additional third-party bank. This also means that refunds generally get processed and completed more quickly than chargebacks. Refunds tend to be the preferred outcome because they give players a better customer service experience and carry less of a reputational risk than chargebacks.

Chargebacks are different because they don’t just involve the player and developer - both the player’s and developer’s banks also get involved. When players initiate a dispute for a chargeback, their issuing bank (the bank that issued their credit card) sends the chargeback information to the acquiring bank (the game studio’s bank), which debits the disputed amount from the studio’s account and credits the player’s account until the chargeback is resolved. So basically, instead of going directly to the studio to get their money back (refund), the player goes directly to their bank instead (chargeback). 

In both cases, the customer initiates the refund or chargeback - but the process and implications are different. Let’s dive into that process.

What is the chargeback process?

There can be some variation in how financial institutions review gaming chargebacks, but in general:

1) The player disputes the charge with their card issuer  

2) The card issuer decides if the dispute is valid - if so, they initiate the chargeback and credit the player’s account while they investigate

3) The card issuer starts collecting information about the chargeback and notifies the developer’s bank (the acquiring bank)

4) The acquiring bank lets the developer know about the chargeback and debits them the disputed amount, at which point the developer decides whether to accept or dispute the chargeback:

• If they accept it, the player’s credit stands and the developer loses the chargeback cost, plus any applicable fees
• If the developer disputes the chargeback, they provide compelling evidence to the acquiring bank on why it’s false, including information like order numbers, receipts, purchase confirmations, etc.

5) The acquiring bank passes along this evidence to the issuing bank’s chargeback team. They review it and either accept or reject the player’s request for a chargeback: 

• If the chargeback is accepted, the player gets to keep the funds
• If rejected, the game developer gets the funds

If either the player or developer disagree with the outcome, they can try to recover the funds through arbitration.

How long does it take to process chargebacks?

Chargeback timelines can vary. That’s true for two reasons:

1. Card brands have specific guidelines and procedures for the initiation of a chargeback, so the processing times can vary between them. Most card brands give players up to 120 days from the time of the charge to dispute it, though 60 days is a common timeline, depending on the scenario
2. Chargeback timelines depend on the nature and type of disputes - and the information captured during the initial transaction. For example, if a player’s issuing bank is using full 3DS (an additional layer of identity authorization and security) validation, game studios can’t be held liable for fraudulent chargebacks 

Are chargebacks in gaming common?

Gaming is prone to chargebacks because of the nature of what’s being sold (digital goods), and players might dispute charges for many reasons:

• They didn’t receive the item in-game
• A child used their parent’s (saved) payment information to make a purchase
• Various kinds of friendly fraud
  
  • Buyer’s remorse
  • They don’t like the item after they’ve bought it
  • They don’t recognize a purchase
  • They make a purchase with the intention of disputing it to abuse the chargeback process
• Account takeovers

Chargebacks for mobile games can be especially prevalent because of card testing. This type of fraud requires making numerous small value transactions to validate whether a card is active. Many mobile games offer items at these low price points, so someone making numerous small purchases isn’t that abnormal and may not be picked up by fraud detection.

The negative impact of chargebacks

Unless you’re the fraudster in question, chargebacks in gaming are a pain for everyone involved: players need to deal with the dispute, card issuers and acquiring banks have to expend resources to evaluate them, and studios lose out on revenue. 

Extra fees

Game studios often need to pay additional fees to the card issuer on top of the chargeback amount - and these can end up being higher than even the transaction value that was originally disputed. In fact, Mastercard estimated that merchants pay $15 - $70 on average for every chargeback dispute. 

Revenue loss

In 2023, it was estimated that merchants lost over $117 billion to chargeback costs. Developers can end up losing significant revenue if their gaming chargeback rate is high - especially once combined with the additional fees tacked onto each dispute. 

Reputational damage

If players request chargebacks often, it can reflect poorly on the game developer - indicating a lack of reliability and credibility. Plus, high chargeback rates can mean higher processing costs, or card networks can even refuse to process the developer’s payments. Reputational damage can be difficult to undo, so it’s best to avoid game chargebacks all together.

How can you prevent chargebacks?

There are many things you can do as a game developer to prevent chargebacks in gaming:

• Clearly communicate what players get when they make purchases
• Provide friendly and prompt customer service
• Implement a clear and generous refund policy
• Help players secure their accounts
• Implement fraud prevention tools (like full 3DS/CVV/AVS)

Communicate clearly

Clearly communicating about the digital goods you sell in-game and on external platforms like a webshop can help reduce the chance players are disappointed with a purchase. Clear item descriptions and using assets that match what players receive in-game can help prevent any surprises on the player’s side when they receive their items.

Provide good customer service

Quick response times (either an instant response for live chat or <1 hour for email support) and friendly customer service can also go a long way in preventing chargebacks. It shows that you care, and that you’re invested in finding a resolution for the player. It also gives you a chance to resolve issues before getting to the chargeback phase.

Create a refund policy that’s clear to all

You should have a well-defined refund policy that’s easy for your players to access and understand:

• Outline the circumstances under which players can request refunds, as well as the process for doing so
• Make the process as straightforward as possible to reduce friction
• Have the player confirm they read the refund policy and agree to its terms (this could help when providing evidence to your bank when a chargeback is being disputed)

The main goal of a generous refund policy is to resolve the dispute before the player escalates it to their card issuer. It’s always better to come up with an amicable resolution like this before the player initiates a chargeback because your chargeback ratio is affected the moment the dispute is even opened - and the higher your ratio, the higher the risk for incurring higher payment processing fees, reputational concerns, etc. 

You might worry that with a (too) generous refund policy that you’ll lose out on revenue, or that players might abuse it. To prevent policy abuse, you can implement and communicate rules around requesting too many refunds - and have players review and accept these terms. For example, if a player asks for frequent refunds, you might temporarily freeze or ban their account. And if the issue persists after the temporary suspension, you might escalate to a longer freeze or a permanent ban. This is all well within your rights if you lay it out in your refund policy and the player accepts the terms - and it’s an effective way to help prevent chargebacks. 

Secure player accounts

Helping players secure their accounts can help prevent account takeover fraud. You should add multi-factor or two-factor authentication, as well as requiring more complex passwords when players create their accounts.

While account security is essential, there can be some perceived tradeoffs, like adding friction to the signup and account login processes. At Stash, we decrease friction by using deep-links and QR codes to ensure a seamless and secure webshop account login/linking flow.

Implement fraud prevention tools

There are many types of fraud prevention tools, so you’ll need to research which ones fit your studio and infrastructure. Some companies offer software you can use to manage the entire chargeback process, while others offer fraud prevention tools that you can implement at the code level, if these aren’t already provided by your payment partner.

Accept the chargeback

Sometimes, chargebacks can happen even if you try and prevent them. It is often the case that disputing them can end in your favor, but there are some instances where accepting game chargebacks is the best strategy to prevent a lengthy and drawn out process, like when:

• The transaction value isn’t high enough for you to spend the time and resources to gather evidence to dispute it
• You know the transaction was fraudulent
• You won’t be able to get the supporting documents you need to dispute it

Chargeback in Epic Games’ Fortnite

Epic Games, the game studio behind Fortnite, experienced a scam last year that exemplifies some of the chargeback risk in gaming. Scammers bought V-Bucks (a virtual currency) using stolen card data, and then resold the V-Bucks to players for real money. When the individual with the stolen card data noticed, they initiated a chargeback. After the chargeback was processed, Epic Games automatically removed the in-game items (or V-bucks if they hadn’t been spent) from the player’s account. In the end, the scammer received real money, the player lost money and their in-game items, and Epic Games had to deal with the chargeback fallout.

Stash is your defense against chargebacks

Ultimately, one of the best things you can do to prevent chargebacks is to partner with reputable companies and payment processors on your direct-to-consumer channels. Chargebacks in gaming, as well as other payment related issues, can be offloaded so that you can focus on building the best game for your players. Stash has you covered on:

• Handling chargebacks, refunds, and other payment related issues
• Fraud detection and prevention
• Defining and implementing a solid refund policy
• Building a web shop that accurately depicts what players receive in-game

To learn more about how Stash can help you build an end-to-end D2C strategy including payments and compliance coverage, commerce features, player acquisition, and engagement strategies, get in touch.