Chargeback fraud, also known as "friendly fraud," is a type of scam where a customer makes a legitimate purchase but later disputes the charge with their credit card company or bank, claiming they never received the item or that the transaction was unauthorized. In this scheme, the customer is refunded their money, even though they received the goods or services. This results in the merchant losing both the product and the payment, as well as being charged a fee for the chargeback process.
Chargeback fraud is challenging for businesses because it often involves legitimate customers taking advantage of the chargeback system, making it difficult to distinguish between actual fraud and genuine disputes. Some common reasons cited for chargebacks in these fraudulent cases include claiming a product was not delivered, that the product did not match the description, or that the transaction was unauthorized.
For businesses, chargeback fraud can lead to significant financial losses, increased processing fees, and potential damage to the company's reputation. To protect against chargeback fraud, businesses should implement strong transaction tracking systems, require signatures for deliveries, maintain detailed records, and clearly communicate return policies. Additionally, merchants can fight back by disputing chargebacks with supporting evidence to prove the legitimacy of the transaction.