Chargeback fraud is similar to friendly fraud, although the dispute is intentional even though the cardholder knows they approved the purchase and received the product/service. Chargeback fraud is when the cardholder deliberately lies about their dispute in order to maintain the purchase yet be refunded the transaction amount.
Some examples of chargeback fraud include:
- Cardholder rebuts the purchase after feeling ‘buyer’s remorse’
- Cardholder contends the purchase after missing the return time limit
- Cardholder disputes the purchase simply because they don’t want to pay the bill
How to prevent chargeback fraud:
The chargeback fraud prevention greatly resembles friendly fraud prevention because they follow the same pattern only differing between the cardholder’s knowledge of the purchase.
1. Effective customer service
By having reliable customer service it allows the team to catch discrepancies in disputes and decrease the probability of the cardholder successfully completing chargeback fraud. This will save the merchant a significant amount of money.
2. Clear yet flexible return policy
A common reason for chargeback fraud is when the cardholder misunderstood or missed the return period therefore they filed a dispute to be refunded for a product they may own but had wanted to return. By clearly explaining the return policy, it makes the cardholder aware of the regulations so they understand how to comply with the policy. In addition, by adding flexibility to the return policy it allows the merchant to receive the product without refunding the chargeback dispute and not receiving the product return.
3. Apparent communication
Similar to friendly fraud, having clear and consistent communication makes it more difficult for the cardholder to successfully dispute the purchase. To maintain straightforward communication the merchant can send updates on the order (e.g. order received, shipped, and delivered), include links in emails to the return policy, set up reminders for recurring payments, allow an easy way to cancel orders, etc.
4. Delivery confirmation
As an extension to the previous point, implementing a system to confirm delivery, for example a signature, will almost entirely eliminate the ability for a cardholder to argue that they did not receive the product.