How to prevent chargeback fraud in your online business?

These days online businesses are faced with multiple challenges when it comes to fraudulent activities. To hinder these, one must implement the right prevention and detection measures into their business model. But that is easier said than done.

Chargeback fraud is one of the fastest-growing types of fraud on the internet. Its impact may reduce company revenue, even lead to destructive effects. It is a costly threat for online businesses, one that can be avoided with the right KYC and AML measures.

The Issue with falling victim to fraud

Chargebacks are essentially reversed transactions in which a consumer requests a return from the issuing bank for a purchase they made. It might be hard to analyze which one you are facing because there are different types of chargebacks. Chargeback fraud is classified as either “friendly” or “hostile” fraud.

A frequent scenario involves a cardholder buying products from a business and then declaring that they did not make the purchase. This provides the cardholder sufficient evidence to submit a chargeback and request a full refund.

Chargebacks have the potential to spin out of control. While valid chargebacks will always exist, you can dramatically limit the frequency of fraudulent ones. The best strategy to deal with friendly fraud, as with all chargebacks, is to prevent it. Every business must diminish chargeback rates, whether they are due to friendly or evident fraud.

Every business should have strategies to deal with chargeback by distinguishing between them. Friendly fraud is extremely complicated, and it is difficult for a business to determine whether a customer’s claim is legitimate. The method which you choose to prevent chargeback will be determined by the form of fraud. Friendly fraud, whether malicious or innocent, never has a positive outcome. Chargebacks are extra expenses faced for all businesses in all industries.

In terms of product, friendly fraud is the merchant’s equal to real theft. Unfortunately, friendly fraud is far more challenging in the online world than a simple loss of merchandise. Since many businesses accept chargebacks they are unable to dispute them. Conversely, it must be proactive in your efforts to prevent and resolve chargeback disputes. For the prevention of repeat offenders, one common practice for malicious chargebacks is to make a list of customers who file chargebacks.

Therefore the more information you have over the submissions for assessment, clearly it’s stronger. the less likely it is that you will do or fail to do something that might result in a chargeback. While chargebacks are a safeguard for customers, the costs and implications for retailers can be cumbersome. When reacting to a chargeback, you must move as fast as feasible. Each stage of the chargeback settlement procedure has a time restriction, and any delay on your side may result in a chargeback loss. Remember that you’re already behind the power curve since you’ll be the last party engaged in a chargeback to learn about it.

Solution: How to solve a chargeback issue?

The following fraud prevention methods can help you decrease chargebacks and protect your business from fraud.

  • Implement KYC: KYC means including both Know Your Customers and Know Your Client, and it is a subcategory of Customer Due Diligence. The practice began in the banking industry when authorities attempted to prevent the transactions of criminals such as fraudsters and money launderers. These requirements have two major aims: to authenticate the customer’s identification and to ensure that they are not engaging in criminal acts. Businesses must remain compliant or face significant regulatory penalties. This is why it is frequently mentioned with other information acquisition rules, such as AML (anti-money laundering) inspections.
  • Prevent Friendly Frauds: Track shipments, demand delivery confirmation where necessary, clarify billing descriptions, and keep an eye on unusual activities to avoid being a victim of friendly fraud.
  • Transparency: A typical issue is that the purchased item was not delivered. While this is true in certain situations, it is also possible that the consumer does not recognize the payment descriptor on their credit card account or that the goods are still in the delivery process. Clear communication from the start might help to avoid difficulties later on. Clarify service conditions and fee adjustments. Make cancellations easy, and respond to requests as soon as possible.
  • Use the security tools: Implement validation procedures such as the Address Verification Service (AVS), card security codes (CVV2, CVC2, etc), or 3D Secure.
  • System for Address Verification (AVS): When doing a card-not-present transaction, AVS verification requires cardholders to submit their billing address in addition to the card information. The address is then matched to bank records, and a code is issued based on how well it matches the bank data. Merchants can then opt to refuse transactions automatically depending on their AVS code.
  • Learn to Recognize Fraud: Recognize the signs that may indicate fraud and make sure your staff is aware of them as well. Validate suspicious orders for your consumers’ benefit.


Chargebacks are frequently indicative of fraud. Businesses have responsibilities to fulfill for their customers, but there are several rights connected with chargebacks. Chargeback rights and obligations are stated in your merchant services agreement and intended to safeguard everyone.

Where applicable, the chargeback procedure provides clear and well-defined avenues for disputing chargebacks. Understanding the causes of chargebacks enables retailers to avoid future chargebacks. Though chargebacks cannot be prevented completely, following these guiding principles, you may save yourself loads of effort and trouble.

Combating chargebacks necessitates accurate tracking, which most businesses lack. While there is no foolproof method to prevent them, there are some methods you may implement to reduce the occurrence and win the chargebacks you face. Remember, don’t ignore chargeback alerts; instead, respond quickly and do everything you can to establish the transaction’s validity. The good thing is that revenue lost as a result of chargeback fraud can be recovered. Hence it is critical to gather all information and analysis connected to each transaction. Businesses must keep their chargeback statistics. The bottom line is that most online banking processors have tracking controls in place, so you’ll be alerted when something goes wrong.


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