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Chargeback Fraud: What Is It & How to Fight It?

Chargeback Fraud: What Is It & How to Fight It?

Chargeback frauds are flooding the digital marketplace right now. It is estimated that Ecommerce lost 20B dollars in 2021 due to fraud. And false chargebacks are a part of it.

Chargebacks — The Root of All Evil

Chargeback alerts can save your online business from substantial losses. They quickly identify such a threat and help you or your personnel successfully protest a chargeback dispute.

Here’s a quick overview of how chargebacks work and under which pretext a bad client may request one.

Chargeback fraud or false chargeback is a dirty trick played by unscrupulous customers, who want to:

  • Get your goods or services.
  • Claim their money back upon receiving whatever you sell.

And the rest is quite easy. A fraudster contacts the bank that issued his or her card and angrily demands their money back. They shamelessly pretend  that you never managed to deliver what was promised for their hard-earned buck.

Such “justifiable” excuses may include:

  • “I sent back a return, but they failed to process it or something…”
  • “Someone else ordered it on my behalf…”
  • “I never paid for it: my card was stolen/hacked…”
  • “It must be a mistake: I distinctly remember cancelling the transaction…”

And so on and so forth. And the worst part is that they don’t need to contact you at all. Instead, swindlers go directly to their financial service provider. And you’ll know that it’d happened only when it hits you.

At first, it looks like a petty crime. But in reality, it can cause some disastrous effects to your venture. Especially if the business you run is still small. So, how will it impact your company?

Repercussions of Evil

Now, let’s see how exactly your business will be harmed due to this “virtual shoplifting”:

  1. Money loss. If you fail to protest the case, you won’t only give the fraudster his money back, You will also have to reimburse the processing fees — they can be as high as $100 per one dispute. This includes operational expenses, acquiring bank’s fees, etc.
  2. Time. There’s no guarantee that you can successfully close a wrongful chargeback dispute — you may lack evidence. Therefore, time will be lost. And time is money.
  3. Reputation. If your chargeback rate exceeds 1%, you’ll be classified as a high-risk merchant. What does it mean? Well, in the best scenario you’ll have to start a costly high-risk merchant account. In the worst, you won’t be able to accept credit card payments — your venture will be finished. 

As you can see, neglecting this threat is like ignoring an iceberg. It may look tiny and insignificant at first. But there’s a hidden bigger danger that will sink your business caravel eventually.

Got a chargeback? Fight Back!

Luckily, there’s an antidote for this trendy cyber scheme. We’ll show you the best tactics to employ, when the fraudsters come after your money.


Even though your customers are living, breathing people, you don’t deal with them first-hand. So, you don’t know who might actually use a credit card — its actual owner or a thief.

And since you’re dealing with card-not-present transactions, you will need:

  • Safe payment platform. Trust only those providers who have a solid reputation: PayPal, Google Pay, 2CheckOut, and so forth. These provide some fraud-detection by default.
  • More fraud detection. Features like Address Verification Services, Know Your Client checks and other measures will guarantee that an actual cardholder is buying your stuff.
  • Records. Collect every piece of evidence, every document that you can: a delivery proof with the client’s signature, sales orders, charge docs, etc.

All this will serve later as a bulletproof evidence that you did deliver the goods to the right person — dispute will be closed in your favor.

Hire extra guns

It’s best to have a professional team by your side when the false chargebacks come knocking at your door. And here’s why:

  • Competence. They know the fraudulent tactics in and out. They know what to expect and how to prevent it.
  • Smart tools. Experts employ a rich arsenal of remedies: from device fingerprinting to Know Your Client automated algorithms. It takes merely a second or two to identify a potential “shoplifter” and decline a shady transaction.
  • Trustchain. They provide a unique environment, which filters out bots and e-thieves who might be hovering over your business like vultures at this very moment.

Needless to say that employing a platform like this will pay off in the first few months. Or at least during the times of peaking sales.

Stay cautious

If you suddenly detect unusual behavior, it may be a major red flag. One of the omens is that a client buys stuff in brisk sessions that occur at different time intervals. Or if a single billing address has multiple shipping addresses.

As practice shows, false chargebacks aren’t a privilege of random dishonest people anymore. Today, there are whole organized crime groups involved in this trade:

  • They order goods in large volumes.
  • Resell them anyway they can: black market or eBay.
  • And finally they request their money back through a false chargeback.

A disgustingly simple, yet absolutely devastating scheme that can ruin a whole company overnight.

Clear descriptions

Another important nuance: your product description must be crystal clear. Your company’s name and your payment descriptor should match.

For instance, if you sell musical instruments under the name Sweet Sounds, your descriptor shouldn’t be titled as Music Tools Inc. This may stir confusion and provoke a chargeback, even from an honest client who didn’t plan to pull a fraud at all.

Return policy

Last, but not least. Your return policy must state in a clear, laconic way under which terms a refund is possible. This will seal the potential loopholes for the fraudsters and protect the fortress of your company even more.

Watch Your Chargeback

Follow our tips and don’t forget to contact an expert team. Fraud chargebacks are a serious threat, and it’s best to prevent it from the start.

Last, but not least. Your return policy must state in a clear, laconic way under which terms a refund is possible. This will seal the potential loopholes for the fraudsters and protect the fortress of your company even more. A retail refund abuse prevention solution can further protect your business from refund abuse.

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