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Home » Blog » How Can Merchants Prevent Chargeback Fraud?

How Can Merchants Prevent Chargeback Fraud?

  • February 24, 2025

As e-commerce and online retail become increasingly prominent features of the commercial landscape, chargeback fraud has emerged as a serious concern for merchants. Chargeback fraud leads to lost revenue and chargeback fees that can add up quickly. But just as importantly, it can steadily chip away at your annual profit margins.

Here, we’ll be taking a closer look at chargeback fraud. What is it, how does it impact merchants, what are the common types? And if you’re wondering how to prevent chargeback fraud, don’t worry — we’ll be diving into that, too. 

What is Chargeback Fraud? 

Chargeback fraud occurs when a customer makes a legitimate purchase from a merchant, but then contacts their bank and falsely claims it was an unauthorized charge. It’s also known as “friendly fraud,” because it’s a fairly simple and accessible type of fraud that anyone can theoretically take advantage of. 

Here’s a quick breakdown of the difference between chargeback fraud and legitimate chargebacks.

Legitimate chargebacks: 

  • The cardholder genuinely didn’t authorize the transaction in question. 
  • The customer never received what they paid for, despite their card being charged, or the item was damaged. 
  • In some situations, the customer returned an item but the merchant failed to issue a refund. 

Fraudulent chargebacks: 

  • The customer received the item they were charged for but disputes the charge anyway, often while keeping what they ordered. 
  • The customer regrets the purchase or has changed their mind, and views a chargeback claim as a way to get their money back. 
  • Rather than resolving the issue directly with the merchant, the customer jumps straight to filing a chargeback with their bank.

Chargeback fraud can become a serious problem if left unaddressed, which is why ecommerce merchants are fighting it with technology. 

How Does Chargeback Fraud Impact Merchants? 

It may be called “friendly fraud,” but the financial and operational consequences of chargeback fraud can be devastating for merchants. In 2023, U.S. merchants lost an estimated $117.47B to fraudulent chargebacks, and that number was expected to be higher in 2024. 

What are the financial impacts of chargeback fraud on merchants?

Merchants have to pay the amount of the disputed charge, along with chargeback fees often ranging from $20 to $100. That’s on top of the potential loss of goods and services. 

What are the operational consequences of chargeback fraud?

Unfortunately, chargeback fraud can negatively impact a merchant’s relationship with their payment processor. If you experience high numbers of chargebacks, you might be looking at increased payment processing fees, or even a termination of your merchant account. 

But it doesn’t end there. If your chargeback situation deteriorates even further, you could be placed on Visa’s TMF (Terminated Merchant File) or Mastercard’s MATCH (Mastercard Alert to Control High-risk Merchants). 

These are database lists of merchants that have experienced exceptionally high chargeback volumes, or otherwise exhibited high-risk behaviors. TMF and MATCH are difficult to get off of once you’ve found yourself there, and your presence on one of them could be grounds for denial of a merchant account in the future.

Common Types of Chargebacks

Chargebacks come in several forms, each of which is characterized by different scenarios. 

  • True fraud: True fraud occurs when a purchase is made with a stolen credit or debit card. If a chargeback dispute occurs, the merchant will typically lose because the purchase was unauthorized. 
  • Friendly fraud: As we mentioned earlier, friendly fraud happens when a customer files a chargeback dispute for a legitimate order they knowingly placed. 
  • Merchant error: It’s important to remember that chargebacks can also occur due to merchant error. Whether it’s a duplicate transaction or a purchase that never shipped, merchant error-related chargebacks can lead to unwanted expenses and a loss of customer trust. 

Now that you have more context on chargebacks in general, let’s look at how to prevent chargeback fraud.

Proven Strategies and Tools to Prevent Chargeback Fraud

The good news for merchants is that you don’t have to get complacent when faced with chargeback fraud. Yes, it feels frustrating in the moment, but there are proactive steps you can take to limit or even eliminate instances of friendly fraud going forward. 

Want to know how to prevent chargeback fraud? Here are some of the most effective strategies.

  1. Implement a clear refund policy: Make sure you have clearly worded and easily accessible refund and return policies on your website, and any brick and mortar locations you operate. 
  1. Rigorously maintain PCI compliance: By following the PCI DSS protocols for merchants, you reduce the risk of data breaches and the customer chargebacks that accompany them. 
  1. Work with a reputable payment processor: Working with an experienced payment processor will give you access to tools like 3D Secure to reduce chargebacks and increase trust, along with other fraud prevention measures. 

At MSG Payment Systems, we have decades of experience helping merchants avoid the hassle and expense of chargeback fraud. We specialize in a range of industries, including propane, jewelry, enterprise and B2B, printing, healthcare, newspaper and media, e-commerce and retail.

To learn more, contact the MSG Payment Systems team today.

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