How to Prevent Chargeback Fraud |

How to Prevent Chargeback Fraud

Ways How to Prevent Chargeback Fraud 768x256 1

Chargeback fraud is a deceptive tactic used by consumers to obtain refunds by exploiting the chargeback process. Instead of contacting the merchant directly for a refund, individuals initiate a dispute with their bank, which triggers the chargeback procedure. They make false claims, such as receiving faulty or undelivered products, denying authorization for the transaction, or alleging unauthorized charges for recurring subscriptions. However, chargeback fraud occurs when the true motive behind the dispute differs from the reasons provided.

Importance of Chargeback Fraud Prevention

Chargebacks are often an overlooked aspect that people prefer not to dwell on. The process of resolving payment disputes can be complex and challenging to grasp. Consequently, many merchants consider the losses incurred as a mere “cost of doing business,” as consumer disputes represent only a small fraction of overall sales.

If you find yourself relating to this perspective, you might be significantly underestimating the detrimental impact chargebacks can have on your financial performance.

Apart from the direct loss of sales revenue and the value of the merchandise, each dispute incurs additional expenses. These expenses encompass chargeback fees, administrative fees, and overhead costs like shipping, fulfillment, and customer acquisition. Moreover, other forms of loss, such as false declines and return fraud, are also likely to rise.

According to a study, for every dollar lost to fraud, the average chargeback ends up costing you $3.60, once you factor in all these supplementary expenses. 

How can Merchants Prevent Chargeback Fraud?

Legitimate and loyal customers have a significant impact on how merchants handle chargeback fraud. As chargeback abuse involves legitimate customers engaging in fraudulent activities with their own credit cards, merchants face uncertainty regarding when and what to dispute. The process of disputing chargebacks requires substantial labor and resources. Consequently, when merchants do identify fraudulent chargebacks, the disadvantages of disputing them often outweigh the benefits, leading them to refrain from taking action. However, this approach presents a problem as failing to dispute fraudulent chargebacks ultimately encourages repeat abusers. By opting not to dispute, merchants inadvertently pave the way for continued abuse.

Some buyers may file a chargeback against sellers despite receiving a product or service. These are some simple pieces of advice to protect businesses from Chargeback Fraud:

Using Customer Authentication

To reduce fraudulent cases, you should always require a CVV code when a consumer pays with a credit card and use AVS (Address Verification Service).

Implementing a 3D-Secure verification also can help prevent fraudsters from stating unauthorized online orders and escalating them to the issuing bank as a chargeback. These actions will also decrease fraudulent activity on the website.

Enable Secure Payment Processing Protocols

Tokenization is a process used to enhance the security of sensitive data, such as credit card information, by replacing it with a unique identifier called a token. The token acts as a surrogate value, representing the original data, but without revealing any sensitive details. Tokenization plays a vital role in preventing fraud by minimizing the exposure of sensitive data and reducing the risk of unauthorized access or misuse.

Strong Customer Authentication (SCA) is an authentication process designed to provide an additional layer of security for online transactions. It is mandated by the revised Payment Services Directive (PSD2) in the European Union. SCA requires customers to provide multiple factors of authentication to verify their identity when making certain types of electronic payments.

SCA requires customers to provide at least two factors of authentication from three categories: something the customer knows (e.g., PIN), something the customer possesses (e.g., a mobile device), or something inherent to the customer (e.g., facial recognition). This multi-factor authentication makes it significantly more difficult for fraudsters to impersonate the legitimate account holder.

SSL (Secure Sockets Layer) certificates are digital certificates that provide secure and encrypted communication between a website and its visitors. They play a crucial role in preventing fraud and chargebacks by establishing a secure connection and ensuring the confidentiality of the information exchanged between the customer’s browser and the website’s server.

SSL encryption ensures that sensitive information, such as credit card details, usernames, and passwords, is securely transmitted and cannot be intercepted or accessed by unauthorized individuals. SSL certificates include a digital signature that verifies the identity of the website’s owner. This prevents fraudsters from creating fake websites and deceiving customers into entering sensitive information on fraudulent platforms.

SSL certificates prevent man-in-the-middle (MITM) attacks where a fraudster intercepts and modifies communication between a customer and a website. By encrypting data, SSL certificates make it extremely difficult for attackers to access or tamper with sensitive information.

Implementing Anti-Fraud System

Businesses should use an anti-fraud system that automatically analyzes and identifies potential fraudsters. Such a system may even block a transaction in case of suspicious activities or fraudulent buyers’ actions on other websites.

Using services that monitor chargebacks and notify merchants when they occur so merchants can respond promptly and minimize their losses.

Alerts can help prevent chargebacks by identifying and flagging potentially fraudulent transactions before they become chargebacks. By providing real-time notifications of suspicious activity, alerts may help businesses quickly detect and respond to potential fraud, which can help to minimize the risk of chargebacks.

Maintaining Transparency with Customers

Ensure your descriptor is easily recognizable in the customer’s bank statements. Customer support service should be reachable. Your website should clearly state Terms & Conditions and Refund policies.

Representing Chargeback

If you are sure that the client is trying to take funds back for a service or product used, you may challenge a chargeback by providing compelling documents to the issuing bank.

Documentation depicting provided service may help win a chargeback and retain funds. However, please keep in mind that a chargeback fee will be applied under any circumstances.

Make Certain That You Support EMV

EMV (Europay, Mastercard, and Visa) payment is a global standard for secure payment transactions using chip-enabled payment cards or smart cards. It involves the use of embedded microprocessor chips in payment cards, replacing traditional magnetic stripe cards. Implementing EMV payment offers several benefits for businesses including:

  • Increased Security – The chip on the EMV card generates a unique transaction code for each transaction, making it more difficult for fraudsters to clone or counterfeit cards. 
  • Liability Shift – The introduction of EMV payment brought about a liability shift in the payment ecosystem. Before EMV, if a fraudulent transaction occurred, the party with the less secure technology (either the issuer or the merchant) would be liable for the resulting losses. However, with EMV, liability shifts to the party that has not implemented EMV-compliant technology. 
  • Consumer Trust and Confidence – EMV technology is widely recognized and trusted by consumers. By implementing EMV, businesses can enhance customer trust and confidence in their payment processes. Customers are more likely to feel secure knowing that their card data is protected by chip technology.
  • Global Compatibility – EMV is a global standard widely adopted in many countries. Implementing EMV payment ensures compatibility with international payment systems, allowing businesses to cater to customers from around the world. 
  • Support for Contactless Payments – EMV also enables contactless payments, commonly known as “tap and go.” This feature allows customers to make payments by simply tapping their EMV-enabled card or mobile device on a contactless-enabled terminal. Contactless payments offer convenience, speed, and a seamless checkout experience.
  • Future-Proofing – As technology continues to evolve, EMV provides a foundation for future payment innovations. EMV-compliant terminals can support additional features such as mobile payments, loyalty programs, and value-added services.

Tracking Client Satisfaction

Ensure the client is satisfied with the provided service or received the product. For example, sending a satisfaction survey may help discover invisible issues and bugs on the website. By checking the satisfaction rate, you may find reasons for chargebacks. Such a survey also may be used as evidence in challenging a consumer’s dispute.


To develop an effective chargeback prevention strategy, it is essential to combine the recommended best practices mentioned above with tailored actions, policies, and technological solutions that align with the unique circumstances of the merchant. This entails conducting a thorough analysis of the merchant’s chargeback data to identify the underlying causes of their disputes.

While there are several independent measures that merchants can take to safeguard themselves, seeking assistance when necessary is another effective way to prevent chargebacks. Engaging the services of a reliable chargeback management firm can help merchants devise a strategy and provide guidance throughout its implementation. This ensures that merchants can retain more of their revenue and maintain a favorable chargeback ratio, keeping them clear of potential risks.

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