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Chargeback Fraud: How to Prevent it and What to Do if it Happens

by Bradley Chalupski
January 1, 2023
in Articles, Chargebacks
Card Not Present Fraud: How Companies Lose Nearly $10 Billion Per Year

Chargeback fraud is a type of credit card fraud that results in the reversal of a charge on a credit card. This can happen when someone uses a stolen credit card to make a purchase, or when someone makes a purchase and then disputes the charge with their credit card company. If you are a business owner, it is important to know how to prevent chargeback fraud and what to do if it happens.

What is chargeback fraud?

Chargeback fraud is a type of fraud where someone uses a credit card to make a purchase, and then the cardholder requests a chargeback from the credit card company after receiving the product or service. The average cost of a chargeback is estimated to be $190. Sometimes this is fraud by an online criminal. Other times, this is done in order to get the product or service for free, and to avoid having to pay for it, a phenomenon known as friendly fraud.

You can also learn more about chargebacks by reading our chargeback consumer survey report.

What are the signs of chargeback fraud?

The signs of chargeback fraud can include many different behaviors, depending on the type of fraud. However, some common signs include customers requesting refunds for products they have not yet received, customers asking for refunds for products that have been used, or customers making a large number of purchase requests in a short period of time.

What are the consequences of chargeback fraud?

Chargeback fraud can have serious consequences for businesses. When a customer files a chargeback, the business is essentially accused of fraud, and the credit card company can take action against the business, including suspending its ability to process credit card payments. This can be disastrous for a business, which may have to shut down as a result.

In addition, businesses can be liable for the cost of the chargeback, which can be significant. The credit card company may also charge the business a fee for each chargeback filed. This can add up quickly, and can be a major drain on the business’s resources.

Chargeback fraud can also have a negative impact on the business’s reputation. Customers may be reluctant to do business with a company that has been accused of fraud, which can lead to a loss of business.

How can you prevent chargeback fraud?

Chargeback fraud can be a costly problem for businesses, but there are a number of ways that businesses can prevent chargeback fraud, including:

  • Making sure that the customer’s credit card is valid and has not been reported lost or stolen
  • Making sure that the customer is actually the person making the purchase
  • Making sure that the customer is not making a purchase for fraudulent reasons
  • Making sure that the customer is aware of return policies
  • Making sure that the customer’s credit card is not being used for a fraudulent purchase

The best way to prevent chargeback from is to use the best chargeback fraud prevention solutions.

What should you do if you suspect chargeback fraud?

If you suspect that a customer is attempting to commit chargeback fraud, you should take the following steps:

First, take a look at the customer’s purchase history. If they have a history of making chargebacks, this is a strong indication that they are committing friendly fraud.

Next, review the order that is being disputed. If the order is for a large or expensive item, it is more likely that the customer is trying to commit fraud.

Finally, contact the customer and ask for more information about the disputed order. If they are unable to provide a reasonable explanation for the chargeback, it is likely that the order was fraudulent.

 

Tags: chargeback fraud
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