What's chargeback fraud?

Pablo Nebreda

Pablo Nebreda

Chargeback fraud, also known as friendly fraud, is a type of online fraud that occurs when a consumer makes a purchase using a credit card and then disputes the charge with their card issuer. This results in the charge being reversed, and the consumer receiving a refund while still retaining the purchased goods or services.

While chargebacks are intended to protect consumers from unauthorized transactions or merchant fraud, chargeback fraud takes advantage of this system. Consumers can exploit the chargeback process by falsely claiming that they did not receive the goods, that they were defective, or that the transaction was fraudulent.

How does chargeback fraud happen?

There are several ways in which chargeback fraud can occur:

1. Intentional deception:

In this scenario, a consumer intentionally makes a purchase with the intent to later dispute the charge and receive a refund while keeping the products or services. They can falsely claim that the package never arrived or that it arrived damaged or different from what was promised.

2. Friendly fraud:

This type of chargeback fraud occurs when consumers genuinely forget about a purchase they made and dispute the charge as unauthorized. It can also happen if the consumer doesn’t recognize the merchant’s name on their credit card statement.

3. Identity theft:

If a fraudster obtains someone’s credit card information, they can make purchases and then dispute the charges as unauthorized, leaving the victim responsible for the losses.

What are the consequences of chargeback fraud?

Chargeback fraud can have significant consequences for merchants:– Financial losses:

Merchants not only lose the value of the sale, but they are also often charged additional fees by their acquiring bank for each chargeback received. Additionally, excessive chargebacks can result in higher merchant processing fees or even the termination of their merchant account.– Reputation damage:

Chargebacks can harm a merchant’s reputation, as excessive chargebacks or high dispute ratios can lead to negative reviews, distrust from customers, and potential difficulties in establishing new partnerships or collaborations. This can have a long-lasting impact on the business’s success.

How can businesses prevent chargeback fraud?

While it may not be possible to completely eliminate chargeback fraud, there are measures that businesses can take to reduce their risk:

1. Implement fraud detection tools:

Utilize fraud detection software that analyzes transaction patterns and flags potentially fraudulent orders for manual review. These tools can help identify suspicious behavior and reduce the number of chargebacks.

2. Clear communication:

Ensure that product descriptions, terms and conditions, and return policies are clearly stated and easily accessible on your website. Transparent communication can help prevent misunderstandings and disputes.

3. Keep detailed transaction records:

Maintain thorough records of transactions, including IP addresses, customer information, and delivery confirmation. This documentation can be used as evidence in the case of a chargeback dispute.

4. Strengthen authentication processes:

Consider implementing multi-factor authentication, such as requiring customers to enter a one-time password sent to their mobile device, to verify their identity during the checkout process.


Chargeback fraud, or friendly fraud, poses a significant challenge for businesses that rely on online transactions. By understanding how chargeback fraud occurs and implementing preventive measures, businesses can reduce their risk and protect themselves from financial losses and reputation damage.

Remember, chargeback fraud is not just a problem for merchants but also for consumers. When fraudsters take advantage of the chargeback system, it can lead to increased costs for both businesses and legitimate customers. Awareness and proactive measures are essential in combatting chargeback fraud and maintaining a secure online marketplace.

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