What Is Chargeback Fraud, And How Can You Prevent It?

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Chargeback fraud in an online payment gateway occurs when a customer contacts their credit card company or bank to dispute a valid purchase and request a chargeback, or refund. This type of fraud almost always occurs online and has grown in popularity as online shopping has grown in popularity.

In the case of customers who knowingly try to "get something for nothing," chargeback fraud can be malicious. However, it can also be the result of an unintentional error, such as when a customer fails to recognise a legitimate purchase on their statement (this is known as "friendly fraud").

Legitimate chargeback fraud occurs when a customer bypasses the business and goes directly to their card issuer to request a chargeback. As an example, consider the customer...

They claim they never received their order, but they did.
They claim they sent back a return that was never processed, despite the fact that it was.
They claim they didn't authorise the transaction, but they did.
Complains that the item or service was not as advertised, despite the fact that it was.

Claims that a recurring payment ...
... was not cancelled as requested, even though it was never cancelled. Chargeback fraud occurs when a customer requests a chargeback for these reasons without first contacting the business to resolve the issue and without returning the merchandise. They are essentially cyber-shoplifting, whether they do it maliciously or not.

Is Chargeback Fraud the Same as Friendly Fraud?
Chargeback fraud and friendly fraud appear to be the same thing on the surface. Friendly fraud, on the other hand, occurs as a result of an honest mistake on the part of the customer. For instance, if the cardholder:

doesn't recognise a valid purchase on their statement...
forgets they made the purchase...
doesn't realise a family member used the card to make a purchase...
mistakenly believes that a bank-issued chargeback is simply another method of processing a return

How Does Chargeback Fraud Hurt Business Owners?
Unfortunately, card issuers are swamped with chargeback requests and have little time or resources to investigate them all. As a result, they frequently approve chargebacks with little or no real evidence, taking the customer's word for it and passing the costs on to you.

While it may seem unbelievable, when a customer requests a chargeback, their refund is automatically deducted from your bank account, along with a hefty chargeback fee imposed by your bank.

Chargeback fraud results in lost revenues, sunk shipping costs, potential merchandise shortages, and damaging chargeback fees for business owners. Chargeback fraud also takes time as you try to dispute fraudulent chargebacks and recoup lost income. Be warned: combating chargeback fraud is difficult because the merchant bears almost entirely of the burden of proof, and the chances of having a charge reversed are slim.

What Is a Chargeback Fee?
When a customer disputes a purchase, you must pay a chargeback fee. It is the fee you must pay in addition to the refund issued by your bank to the customer. This chargeback fee can range between 100 and 1000 rupees per transaction. This chargeback fee of the best online payment gateway is levied by your bank to cover the administrative costs of refunding a customer's money as a result of a chargeback request.

Chargeback fees can be deceptive. While credit card companies typically notify you of chargebacks, they frequently do not do so for small transactions, such as those under Rs.30. Unfortunately, if these small chargebacks and chargeback fees go undetected, they can add up and eat holes in your bank account long before you're aware of them.

How Can You Protect Against Chargeback Fraud?
You can combat chargeback fraud and reduce risks to your business by taking the following steps:

Make use of reliable credit card verification methods. Implement automated systems to verify that a customer's credit card billing address matches the one on file with the card issuer. If it does not, you have the option to reject the transaction.

Keep an eye out for unusual orders. If a customer orders a large number of products, makes multiple purchases in a short period of time, or has wildly different billing and shipping addresses, it may indicate potential chargeback fraud. Organized retail crime rings, for example, have been known to order a large quantity of items to resell, request an illegitimate chargeback, and then resell the merchandise at nearly a 100 percent profit. If you notice anything unusual, contact the cardholder to ensure that the transaction is valid (and keep records of the conversation).

Confirm each order. Send an automatic email confirmation to the customer after they place an order. This helps to prevent friendly chargeback fraud by informing customers that their shipment is being processed and reminding them that they made the purchase in the first place. It can also deter cyber shoplifters and chargeback fraudsters.

Customers should be reminded of recurring payments. Send an email notification to customers to remind them of an upcoming automatic payment. When customers are perplexed by a recurring payment they agreed to but had long forgotten about, friendly chargeback fraud can occur.
Shipment tracking is used, and signature confirmation is required. Proof of delivery is an important line of defence against chargeback fraud. Packages left unattended on doorsteps expose you to chargebacks from customers who claim they never received your package. Make sure that both you and the customer have access to shipment tracking information, and require shipments to be signed for when it makes sense for your business.
Make use of concise transaction descriptions. If a customer does not recognise the name on their credit card statement, they may incorrectly believe that a legitimate purchase was fraudulent and request a chargeback.

Define your return policy clearly. You can deny a refund request from a customer if your policy clearly states that one is not warranted. Chargeback fraud necessitates a multifaceted approach, and this should be just one of several defences in your arsenal.

Document conversations and interactions with customers so you have a paper trail of evidence to work with if and when chargeback fraud occurs.