Understanding Chargeback Fraud And How To Prevent It

Understanding Chargeback Fraud and How to Prevent it

Published on June 24th, 2020

Merchants online need to have ample knowledge about chargeback fraud management solutions since they are the biggest victims of what is referred to as friendly fraud.

There is however nothing friendly about this crime and just like a fake friend, you must find the best way to protect yourself from it.

Chargeback fraud management solution can be simple steps you take to prevent fraudsters from making you a target, to software solutions that you can install into your system to detect and prevent it from occurring.

We shall take a look at the different solutions, but first, let us understand the crime.

What Is Chargeback Fraud

It is a case of people taking advantage of what was intended to be a protection for shoppers from dishonest merchants.

Before it was a fraud, a chargeback was an arrangement by financial institutions to let their customers receive a refund for online payment in case what they ordered never arrived or the product was not what they expected it to be.

Chargebacks could also be affected if a customer had their credit card details stolen and the thief used the details to make purchases.

Nowadays, however, several merchants are suffering chargeback fraud because dishonest shoppers will claim not to have received products and ask for their money back, yet they received the product.

Merchants are also getting blacklisted by financial institutions after a series of chargeback fraud reports involving the same merchant.

Since it can be very damaging to a person’s livelihood and reputation, it is only right that they take steps to prevent it. Here are some ways to prevent crime.

What To Do About Chargeback Fraud?

Have Detailed Shipping Documentation

This solution will help you deal with claims by a shopper that the product was not delivered to them. Ensure you get the exact address where the package is to be delivered and record that address.

Next, you will need a reliable shipping company that will make sure they provide proof that the product was delivered and signed for. The date and time of the delivery should be included.

Have Clear Refund Policies

If your refund policy is not clear, dishonest people can exploit that. Clearly spell out the policy and whenever someone attempts to return a product fraudulently, use the guidelines to show that they do not qualify for a refund and they are simply attempting to steal from you.

Once again, it is important that the entire transaction and return process is documented.

Be Transparent Regarding Your Products

Sometimes merchants may not be clear about their products and maybe accused of false advertising.

If shoppers can successfully prove that what they saw online and what was delivered do not match, the shopper will be entitled to a refund, if this happens often, even the fake claims will end up being successful.

Make every effort to clearly describe your product. Include many pictures from different angles and have genuine reviews that can give a clear picture of the product.

Authenticate Transactions

Your online store needs to have strict authentication procedures. This is what so many retailers have put in place to prevent fraud of different kinds including chargebacks.

Authentication processes will ensure that the shopper is indeed the one making the order and not a faceless criminal.

There are different authentication systems you can use which include passwords, secret questions, as well as verification codes, sent directly to the user’s mobile phone.

With authentication and verification procedures in place, it is difficult for a shopper to claim they were not the one who made the order since the authentication can only be successful if they are the one performing the transaction.

Analyze Transactions

With the right fraud detection solution, you can analyze patterns in a shopper’s transactions which may alert you in case someone else is trying to make a false transaction.

This is a solution usually recommended for transactions exceeding particular amounts. Many times fraudsters will try to make big transactions as quickly as possible before they can be discovered.

Analytical solutions help the merchant, as well as financial institutions, recognize fraud as it takes place and they can put a stop to it before extensive damage is caused.


  • Chargeback fraud can cost a merchant a lot of money. It is important to understand how fraudsters succeed at stealing from merchants.
  • With detailed documentation of every transaction and delivery, you can make it difficult for a user to claim they did not receive a product.
  • You should also have clear descriptions of your product so that there are fewer cases of people returning products because they do not look the same in real-life.
  • Lastly, adopt strict authentication processes so that only the card owners can carry out transactions and have analysis of every transaction to red flag possible fraud.

You however should understand that the online criminals are dynamic and as you tighten up one loose end, they are looking for another, so invest in technology to keep you ahead of them.