Understanding chargeback fraud and how to protect your revenue

A chargeback is a disputed transaction in which the cardholder requests their bank reverse the payment. They play an important role in protecting consumers from fraud and billing errors. 

For businesses processing payments at scale, they’re also one of the most costly and time-consuming parts of managing payments.

Chargeback fraud is when a shopper makes an intentional purchase, then contacts their issuing bank to ask for a refund, claiming the transaction was unauthorized.

This forces a payment reversal, causing the business to lose the money and inventory while also needing to pay additional dispute fees.

Here are the most common reasons shoppers initiate these disputes:

• Confusion. Shoppers forget they made a purchase or fail to recognize the merchant description on their bank statement.

• Dissatisfaction. Customers feel the product did not meet their expectations and bypass the standard return policy in favor of a bank dispute.

Family fraud. Someone else, such as a child, makes an unauthorized in-app purchase without the primary cardholder's knowledge.

The main difference between friendly fraud and chargeback fraud is that friendly fraud is the broad overarching term for illegitimate refund requests, while chargeback fraud is a specific type of friendly fraud.

Friendly fraud encompasses both chargeback fraud and refund abuse. Refund abuse is when a customer might falsely claim to the business that they never received a product, while chargeback fraud involves the shopper going directly to their issuing bank to formally dispute the charge and forcibly reverse the payment.

The chargeback process involves a communication flow between the cardholder, the issuing bank, the card network, and the acquiring bank.

Here is how the process works step by step:

1. The cardholder contacts their issuing bank to dispute a specific charge on their monthly statement.

2. The issuing bank reviews the preliminary claim and, if deemed valid, credits the cardholder while forwarding the chargeback to the card network.

3. The card network routes the chargeback data to the business’s acquiring bank.

4. The acquiring bank deducts the disputed transaction amount, along with a non-refundable chargeback fee, directly from the business’s account.

5. The business receives a notification of the dispute and must decide whether to accept the financial loss or submit compelling evidence in hopes of reversing the chargeback.

Chargeback fraud damages a business’s bottom line through direct revenue loss, depleted inventory, and administrative penalties.

The consequences include:

• Lost stock and revenue. The business instantly loses the funds from the original transaction as well as the shipped merchandise or provided service.

• Chargeback fees. Acquiring banks issue a mandatory administrative fee ranging from $5 to $100 for every dispute processed, regardless of who wins.

• Reputational harm. Consistently high dispute ratios can lead to severe penalties from card networks and damage the business's standing within the payments ecosystem.

Proactively mitigating these risks is essential for protecting your payment performance and ensuring sustainable growth.

Preventing chargeback fraud requires a comprehensive approach that combines clear customer communication, easy return policies, and advanced fraud detection technology. Adopting these strategies will protect your business while providing an easy checkout experience for genuine shoppers.

Here is how to do it:

Use authentication tools

Implement 3D Secure to verify every shopper's identity and shift the liability for fraudulent chargebacks from your business to the card issuer.

Optimize billing descriptors

Ensure the business name on bank statements matches your customer-facing brand exactly so shoppers easily recognize their transactions.

Facilitate easy returns 

Provide a transparent return policy and process legitimate refunds quickly so customers do not feel compelled to contact their bank.

Deploy a risk system

Use intelligent payment fraud detection to recognize suspicious patterns and block repeat offenders who frequently initiate disputes.

Adyen’s unified platform is equipped with intelligent risk management tools to help you identify, block, and manage chargeback fraud. 

With our Protect product suite, you can confidently tackle the complexities of friendly fraud using advanced machine learning and customizable risk rules. We partner with you to build a resilient payment strategy that minimizes costly disputes while maximizing legitimate conversions.

Ready to optimize your payment processing and block chargeback fraud? Get in touch with our team to discover how our advanced risk management tools can safeguard your revenue — or get more insights from our 2026 fraud report.

• Chargeback fraud happens when shoppers illegitimately dispute valid purchases to secure unauthorized refunds from their bank.

• Friendly fraud is a growing threat, taking billions in global revenue and burdening businesses with expensive chargeback fees.

• Clear business descriptors and highly accessible return policies can reduce disputes caused by confused customers.

• Implementing authentication layers like 3D Secure successfully shifts financial liability and protects businesses from fraudulent claims.

• Advanced risk systems use machine learning to identify repeat offenders and block fraudulent transactions before they process.