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What is Chargeback Fraud?

Chargeback fraud is essentially the equivalent of shoplifting in the world of online shopping.

If a customer makes a purchase and then deliberately files a chargeback falsely claiming the product or service was not delivered or received as described, then that is chargeback fraud.

While chargebacks were initially created as a consumer protection to shelter consumers from unfair merchants and identity theft, consumers who take advantage of the protection, under the guise of a legitimate transaction dispute, are committing chargeback fraud and exploiting the merchant.

Chargebacks are meant to allow the customer’s issuing bank to return funds from illegitimate transactions back to the customer’s bank account if there is sufficient reason to do so. However, if a customer takes advantage of the chargeback protections deliberately so they can benefit financially, then they are committing chargeback fraud. It’s important to note that customers may file a chargeback due to confusion or forgetfulness and that these instances of legitimate customer disputes are considered friendly fraud, not chargeback fraud because the customer doesn’t have any malicious intent.

Chargeback fraudsters may claim that the purchased item or service was not delivered, that the merchant didn’t cancel their recurring bill cycle, or that they did not authorize the original transaction. Unfortunately, it’s been observed that consumers may engage in further chargeback fraud after they file a legitimate chargeback and realize how easy it can be to get away with it.

How Do I Protect Myself?

Here are some ways you can help protect your business from chargeback fraud:

  1. If your business has recurring billing cycles for any of your products or services, be sure to notify customers before they are enrolled in, or move into, a new billing cycle.
  2. Use delivery confirmation tools so you can confirm when a product is received by the customer. By requiring customers to sign to receive a package you can confirm that the item was delivered successfully.
  3. Review your business’s sales to look for signs of fraudulent transaction patterns to help minimize the risk of processing a stolen credit card.
  4. Ensure your billing name descriptor is synonymous with your business's main brand that customers are already familiar with. If a customer doesn’t recognize the descriptor on their card statement, then they may report a suspicious transaction to their card issuer.

By taking these measures, you can help protect your business from chargeback fraud, while still allowing customers to access the credit card protections they are entitled to for legitimate issues.

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