What is Chargeback Fraud

Woman disputing charge on phone with bank_CardinalCommerceWhat is chargeback fraud? Chargeback fraud, often called friendly fraud, is when consumers fraudulently attempt to secure a refund using the chargeback process. Instead of contacting the merchant directly for a refund, consumers dispute the transaction with their bank, thus initiating the chargeback process. Consumers will falsely complain that the product they ordered was delivered defective or not at all, that they did not authorize the transaction, or that they had requested the cancellation of a recurring transaction and were charged anyway. Whatever reason they give, chargeback fraud is when the real reason is something else entirely.

Reasons Consumers Commit Chargeback Fraud

There are many reasons why consumers might decide that disputing the transaction with their bank will be more successful than having that conversation with the merchant directly. Most of the time, they are probably correct in their assumption. Consumer disputes often result from the cardholder’s desire to get something for free, their lack of understanding the process, buyer’s remorse, forgetting they made the purchase, or the fact that a family member made a purchase with their card they did not agree to. They may even have tried to obtain a refund from a merchant, only to find that the arbitrary time limit for refunds had expired.

Why Chargeback Fraud Succeeds: Reason Codes

The difference between the real reasons a consumer is disputing a transaction and what they tell the bank is most often irrelevant, because the bank has no way to assess the truth of the reasons they are given. Banks simply assign reason codes based on the information a consumer provides, and merchants often accept these assigned codes at face value. Recognizing what is chargeback fraud and what is a legitimate dispute has been difficult in the past and often not worth the time and potential negative customer relations to challenge. Merchants who engage in eCommerce business are particularly vulnerable due to the volume of purchasing consumers engage in online, and the relative anonymity online shopping provides. 

Why All Merchants Should Fight Chargeback Fraud

Chargeback Fraud does not just damage individual merchants, but the whole eCommerce channel (among others). It has become a vicious cycle between cardholders, banks, and merchants that cannot be broken until merchants start pushing back. Banks do not have time to investigate every cardholder dispute for validity.

Merchants rarely dispute chargebacks, which make banks that much more reluctant to adopt stronger policies to deter fraudulent chargebacks. In fact, up to this point, most merchants simply factor in chargebacks as part of the cost of doing business. While merchants may see ignoring chargebacks as making sense from a cost vs. benefit perspective, banks see this ignoring of chargebacks as an admission of guilt, which can make them even less inclined to verify the validity of future chargebacks against these merchants.


What is chargeback fraud? Chargeback fraud is where consumers initiate disputes with their bank to overturn a transaction for an illegitimate reason. Chargeback fraud has been regarded as the cost of doing business in the past, but merchants have the option of fighting these tactics. 

Back to Chargebacks

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