In 2025, chargebacks remain a critical tool for protecting customers from unauthorized or incorrect charges. However, when misused, they can lead to chargeback fraud, draining your business of revenue, resources, and credibility.
This guide breaks down what chargeback fraud is, why it happens, and the steps your business can take to prevent it.
What Is a Chargeback?
A chargeback occurs when a customer disputes a transaction with their bank, asking for a reversal. This system exists to protect buyers against fraud or errors, such as being charged twice or receiving a defective product.
What Is Chargeback Fraud?
Chargeback fraud, sometimes called “friendly fraud,” happens when a customer falsely claims they didn’t authorize a purchase or never received their order—even when they did. For example, a customer buys a pair of sneakers online, receives them, and then files a chargeback to get their money back while keeping the shoes.
Unlike legitimate chargebacks, which address real issues, chargeback fraud exploits the system to get free goods or services, costing businesses heavily.
Is Chargeback Fraud Illegal?
Yes. Filing a false chargeback claim intentionally is considered fraud or theft in many jurisdictions. However, it’s important to note that not all chargebacks are fraudulent—only those where customers knowingly misuse the system for personal gain.
US businesses can pursue legal action against customers who commit chargeback fraud, depending on the evidence and the applicable state laws.
Types of Chargeback Fraud
- Criminal Fraud
Occurs when a stolen credit card is used for unauthorized purchases. The real cardholder disputes the charge upon noticing it, leading to a chargeback.
Example: A scammer buys a smartphone using stolen card details, and the real cardholder files a chargeback.
- Friendly Fraud
Happens when a customer disputes a valid charge, claiming non-receipt or unauthorized use. It can be accidental (forgetting about the purchase) or intentional to get a refund while keeping the product.
Note: In 2024, 72% of merchants reported an increase in friendly fraud, making it a growing concern for US businesses.
- Merchant Error
Occurs when businesses make payment-related mistakes, such as charging a customer twice or billing the wrong amount. These are legitimate disputes customers file to correct genuine issues.
Example: A customer is double-charged for the same order and disputes the extra charge with their bank.
How Chargeback Fraud Impacts Businesses
- Direct Financial Losses: You lose both the product and the payment, plus pay chargeback fees for each dispute.
- Damage to Reputation: A high chargeback rate can flag your business as high-risk, making it harder to secure favorable payment processing rates.
- Operational Disruptions: Managing disputes requires time, documentation, and resources.
- Risk of Account Termination: Excessive chargebacks can lead to payment processors suspending or terminating your account, stopping your ability to accept card payments.
How to Prevent Chargeback Fraud
Use Strong Payment Verification
Implement security measures like CVV checks, 3D Secure (Verified by Visa, Mastercard SecureCode), and address verification to prevent unauthorized transactions.
Monitor Transactions for Suspicious Activity
Flag and review transactions with:
- Mismatched billing and shipping addresses
- Large orders from new customers
- Multiple rapid purchases from the same card
Display Clear Refund and Return Policies
Transparent policies reduce confusion and prevent disputes from customers who might otherwise file a chargeback.
Maintain Detailed Transaction Records
Keep records of:
- Order confirmations
- Tracking and delivery proof
- Customer communication
These are essential when contesting fraudulent chargebacks.
Leverage Chargeback Protection Tools
Many payment processors, including Bridgeswipe, offer fraud detection and chargeback protection services that use AI to detect risky transactions before they result in chargebacks.
Best Practices for Fighting Chargeback Fraud
- Respond Quickly: Every chargeback comes with a deadline. Missing it may automatically forfeit the dispute.
- Submit Strong Evidence: Include invoices, tracking numbers, delivery confirmations, and customer communication to prove legitimacy.
- Use Fraud Detection Tools: Automated fraud detection flags high-risk orders in real time.
- Train Your Support Team: Empower your team to handle refund requests correctly and recognize potential fraud to resolve disputes before they escalate.
Conclusion
Chargeback fraud is a serious challenge that can drain your business financially and damage your reputation. It involves customers misusing the chargeback system to get refunds for legitimate purchases.
To protect your business:
- Use strong payment verification
- Keep detailed records
- Train your team
- Leverage fraud detection tools
- Respond to disputes promptly
By taking a proactive approach, you can reduce chargeback fraud, preserve your cash flow, and maintain your standing with payment processors.
FAQs on Chargeback Fraud
Q1: What’s the difference between a chargeback and a refund?
A refund is issued directly by the business at the customer’s request, while a chargeback is initiated by the customer through their bank, often without notifying the business.
Q2: Can businesses fight chargeback fraud?
Yes, you can dispute chargebacks by providing strong evidence such as invoices, tracking details, and communication records within the processor’s deadline.
Q3: How long does it take to resolve a chargeback?
Typically, 75–120 days, depending on the payment network and response times.
Q4: Which industries are most affected by chargeback fraud?
E-commerce, digital goods, subscription services, and travel face higher rates due to remote transactions and the challenges of proving delivery.
Q5: What should I do if my chargeback ratio is high?
Review recent chargebacks, enhance fraud checks, improve documentation, and respond to disputes quickly. Work with your payment processor to implement strategies that reduce chargebacks.
Ready to Protect Your Business?
https://bridgeswipe.com offers advanced chargeback protection and fraud detection tools to help US businesses minimize chargeback fraud while ensuring smooth payment processing for your customers.
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