Understanding chargeback fraud and how to protect your revenue

Friendly fraud is the overarching term for illegitimate refund requests, whether they are requested from the business or the bank. Chargeback fraud specifically refers to the act of initiating an illegitimate dispute directly through the issuing bank to reverse the payment.

Businesses lose the original transaction amount and the cost of the goods or services provided, plus an additional non-refundable chargeback fee. These administrative fees typically range from $5 to $100 per dispute.

Yes, implementing 3D Secure adds an authentication step that shifts the liability for fraud-related chargebacks from the business to the card issuer. This is a highly effective strategy for protecting card-not-present online transactions.

Customers may commit friendly fraud accidentally by forgetting a purchase or failing to recognize the billing descriptor on their bank statement. Others may do it intentionally out of dissatisfaction with the product or to deliberately commit refund abuse.

Ensure your billing descriptor clearly matches your public brand name and provide excellent customer service. Processing legitimate refunds quickly and keeping shoppers informed about shipping delays also prevents them from escalating the issue to their bank.

Chargeback fraud comes in several forms, such as criminal fraud (stolen card use), family fraud (a household member makes unauthorized purchases), merchant error (billing mistakes mistaken for fraud), refund or return abuse (customers seek both a refund and chargeback), subscription disputes (forgotten or misunderstood recurring charges), and account takeover or synthetic identity fraud where compromised or fake accounts are used to make purchases that are later disputed.