The Top 5 Chargeback Fraud Tactics Every Merchant Should Know

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Chargebacks are forced reversals of transactions, raised by the customer to their bank. These were created to protect consumers for reasons such as merchant fraud, billing errors, or dissatisfaction with the product. However, consumers can abuse this protection, leading to chargeback scams. 

This type of fraud has been rapidly increasing, and it affects all industries and businesses. Mastercard reports that each chargeback dispute costs businesses between $9.08 and $10.32 to process, estimating that in 2025, 261 million chargebacks took place. Many of these would have been fraudulent and unnecessarily cost merchants their time and money.  Here we’ll outline the most common chargeback scams and how you can prevent them from affecting your business.

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1. Friendly Fraud 

Friendly fraud, also known as first-party fraud or first-party misuse, occurs when a customer disputes a valid transaction; this can happen knowingly or unknowingly. The bank automatically refunds the customer from the merchant's account, raising a chargeback. Merchants are thus forced to respond and provide evidence that the charge was legitimate, leading to damaging operational costs that cut revenue, lose time, and negatively impact reputation.

According to a Visa report, friendly fraud makes up to 75% of all chargebacks, making it the most common chargeback scam. 

How to prevent this?

Preventing friendly fraud is possible, and many unknowing abusers of friendly fraud can be redirected. For example, through :

• Trustworthy customer support that can help solve their issues, such as helping with a return/refund if needed, so the customer doesn’t go straight to the bank.

• Clear policies that outline return methods so customers are aware of what to do if they are dissatisfied with the product.

• Clear billing descriptors help customers identify what charges have gone through, which can help prevent confusion and unwanted chargebacks.

• Use chargeback prevention alerts, which let merchants know when a dispute has been filed, allowing them to intervene appropriately before it escalates to a chargeback.
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2. Item Not Received 

Item Not Received chargeback scams are as they sound — the customer reports that they did not receive a product they purchased, so that they can get a refund while keeping the item. This can apply to physical products and digital goods. These scams are also a form of friendly fraud. 

How to prevent this?

These claims can be refuted, provided the merchant can demonstrate sufficient evidence and strong communication, such as: 

• Delivery details, which can include tracking numbers, delivery dates, or email confirmations

• Proof of delivery, which can entail physical proof of delivery, such as photos from delivery drivers. 

• Provide follow-up customer service, for example, after products are delivered, contact the customer to ensure they received it, so they can contact you before contacting the bank. 

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3. Subscription-Based Fraud 

Forgotten subscriptions to streaming services or online courses are a common cause of chargebacks; customers may then dispute multiple charges at once, claiming they were unauthorised or that they had been cancelled yet still billed. 

Subscription fraud also includes trial-abuse fraud, where customers create multiple accounts, many with fake information, to take advantage of free trials before the paid subscription begins. 

How to prevent this?

Subscription services are becoming increasingly common, a reliable method of revenue for companies; however, they also come with the rise of chargebacks. There are, fortunately, actions merchants can take to prevent them:

• Make subscriptions easy to cancel so that customers don't feel the need to go straight to the bank.

• Send follow-up emails and let your customers know that they are still enrolled in your subscription, so that they don’t forget and are surprised when the charge appears on their statement. 

• Use verification tools to ensure that multiple accounts under the same details aren’t being used, and make sure limits are in place to prevent this from happening.

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4. Return Fraud 

Return chargeback fraud occurs when a customer asks their bank for a refund after a legitimate purchase, claiming the product was damaged or they were dissatisfied, even though it had been used by the customer or was in fine condition. Fraudsters may return the incorrect item, use the item briefly, then return it or never send it back - yet they can still receive refunds from the bank. 

How to prevent this?

Return fraud scams can vary slightly in each situation but every one is still preventable, for example,  through:

• Clear return policies that outline the conditions needed for a return, such as the product in its original condition, the process itself, and the period after purchasing during which a return can be conducted. The return process can also be automated through return management software. 

• Review the returned products to ensure that the product is in the same condition as when it was purchased, and make sure that the product is actually returned.

• Monitor customer activity to keep a record of recurring returns from customers, as they may be creating a pattern of fraudulent activity.

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5. Digital Goods Chargeback

Digital goods chargebacks are disputes on electronically purchased and delivered products; the payment is then forcefully reversed. Examples of digital goods include: E-Books, streaming services, and mobile/video games. 

These chargebacks have been rapidly increasing alongside a new age of technological development, where the payment process has never been easier, and so much of people’s lives revolves around their devices and what they can do on them. They are also rising due to their intangibility because it is much harder to prove someone received an electronic product than a physical one, which tracks shipping and delivery.

How to prevent this?

As digital chargebacks are becoming more prevalent, prevention tactics against them are also strengthening. Here’s how:

• Before a customer purchases the product, make sure customers are fully aware of the product they are receiving and clearly outline billing descriptors and refund policies. Post-purchase communication is just as important; send follow-up emails to ensure they received the product or remind them about existing digital subscriptions. 

• Use prevention tools such as ChargebackStop. We can automatically stop chargebacks with Ethoca Alerts and Verifi Rapid Dispute Resolution by notifying you when a dispute comes in. Other verification measures, such as address verification service (AVS) or card security codes (CVV, CVC), can help merchants prove customer identities. 

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ChargebackStop Against Chargeback Scams

Chargeback scams are costly to merchants and are rapidly rising, but with ChargebackStop, we can help you manage this burden. 

Our system monitors incoming disputes in real-time, allowing merchants to investigate the nature of the dispute and check if it is legitimate before it becomes a chargeback. Any scams that do go through, we can also help you with by helping you compile the necessary evidence and appropriately send it to the bank to increase the chances of you winning. We remove the manual labour your team would have to go through with our automated systems and allow you to focus on your business. 

Book a demo with us and rid yourself of nasty chargeback scams.