Chargeback fraud happens when a customer makes a legitimate credit card purchase, receives the product or service, and intentionally files a chargeback through the credit card company with the goal of receiving a full refund and keeping the product.
Chargeback fraud is one of the biggest drains on a small- and medium-sized ecommerce business’s bottom line: For every $100 lost in chargebacks, the company actually loses $240 in time, fees, physical goods, and shipping costs. And that’s not considering what happens to a company’s relationship with payment processors if their chargeback rate is too high.
Once their chargeback rate is nearly at or over the 1% threshold, businesses are usually subject to management programs that impose high fees and the potential of becoming “high risk.”
Similar to chargeback fraud is friendly fraud.
What is friendly fraud?
Friendly fraud occurs when a customer pays with a valid card but then claims their order never arrived, that it was damaged, or that it was substantially different from the product description on the website. Most often friendly fraud is unintentional and can happen for a number of reasons:
- The customer forgets they made the purchase.
- Another family member authorizes the purchase.
- The customer forgets they agreed to recurring billing.
- The customer misunderstands the merchant’s return policy.
While this type of fraud may be considered “innocent,” it’s still costly. Friendly fraud accounted for 29% of U.S. ecommerce losses in 2021.
Related Topics
False Declines & Approval Rates
Related Resources
Friendly Fraud vs. Chargeback Fraud: Can You Tell the Difference?
Prepaid Cards and Chargeback Fraud: Yes, It’s Real
5 Common Chargeback Reasons and How to Avoid Them
5 Types of Ecommerce Fraud Schemes You Should Know About
Ecommerce Fraud Protection for Online Merchants: The Ultimate Guide
Friendly Fraud: What Ecommerce Merchants Need to Know
Why Friendly Fraud May Be a Problem for Your Fraud Protection Solution
Ecommerce Fraud Protection for Online Merchants: The Ultimate Guide
5 Ways to Protect Your Business From PayPal Chargeback Fraud