As the global shift to e-commerce during the coronavirus pandemic accelerated, more consumers began shopping online. While this increased e-commerce revenue, it also contributed to an uptick in chargeback fraud. Chargebacks are a form of transaction reversal that occurs when a cardholder disputes a purchase with their bank or payment processor. They occur for a variety of reasons, including fraud, dissatisfaction with a product or service, and errors by businesses. Regardless of the reason, chargebacks are costly for merchants.

While chargeback fraud consequences like account takeovers and typical CNP fraud happens before checkout, friendly fraud often takes place after. In most cases, these customers weren’t trying to defraud the merchant; they were simply filing a dispute over something that didn’t meet their expectations. This kind of chargeback is known as first-party misuse, or “friendly fraud.”

Chargeback Fraud Exposed: Strategies for Merchants to Defend Against Deliberate Attacks

The resulting dispute can lead to loss of income, higher fees from payment processors, and in severe cases, even the loss of the ability to accept credit card payments. In addition, a high number of chargebacks can impact a business’ reputation, making it hard to find new partners or clients.

To combat the growing problem of chargeback fraud, it’s critical to understand the different types of fraud that can result in chargebacks, the hidden costs of chargebacks, and best practices for fighting friendly fraud. In this article, we’ll examine the definition of chargeback fraud and discuss ways that merchants can mitigate it. We’ll also explore the best chargeback prevention strategies, and we’ll look at how automated fraud tools can decrease friction during the representment process.