Fraudulent chargebacks are all too common. Visa reports that up to 75% of chargebacks may actually be the result of first-party fraud. Worse yet, some merchants don’t prioritize preventing first-party fraud nor do they fight these fraudulent chargebacks, potentially leaving revenue on the table and encouraging a more conducive environment for fraudsters. When a merchant is hit with fraudulent chargebacks, the best course of action is typically to fight back.
With first-party fraud, the cardholders themselves will try to abuse the chargeback process, often in an attempt to score free goods. A customer could order a sweater online, get the shipment, but then claim it never arrived. If their chargeback is approved, they can keep the sweater for free. Digital identification verification service Socure reports that about 13% of Americans admitted to engaging in friendly fraud during the 2024 holiday shopping season.
Both preventing first-party fraud and Fighting chargebacks can help you recover revenue and discourage criminals from targeting your business. Of course, fighting chargebacks is easier said than done. The good news is that there are now a variety of tools merchants can use to prevent and fight first-party fraud.
The chargeback management tools offered by ChargebackHelp make it easier to manage the entire dispute process and can help businesses boost their win rate. Feel free to reach out to our team if you need help combatting first-party fraud.
How You Can Fight Chargebacks
Step 1- Get the Chargeback Reason Code
Once a chargeback is filed, the card issuing bank will send the merchant’s acquiring bank a notification containing the chargeback reason code, which will outline the reasons why the chargeback was filed. The codes vary from card network to card network, so make sure you study them closely.
Step 2- Identify the Transaction
Chargebacks stemming from first-party fraud can generate a variety of reason codes, and it may not be immediately obvious that the chargeback is fraudulent. For example, a customer could claim that a product they ordered online was never delivered. It’s possible the package was stolen or lost in transit, but it’s also possible that it was, in fact, delivered and even signed for.
This means you’ll have to dig deeper and examine specific transactions. So once you’ve received a chargeback letter, look up the transaction. Then you can check to see if there have been any communications with the client, such as complaints, requests for refunds, and anything else. From there, the investigation may go deeper.
Step 3- Look for Evidence of Fraud
Once you have the transaction identified and the basics noted, you can start to look for evidence that the chargeback may be fraudulent. In the case of a customer claiming an order never arrived, if they signed a delivery receipt, you have strong evidence that the product was indeed delivered. A quick search through social media might also uncover photographs of the customer using the product.
Step 4- Write a Rebuttal Letter
After reviewing the transaction, you’ll have to decide whether to accept the chargeback or to dispute it. If you find evidence that the chargeback is fraudulent, it’s a wise idea to file a chargeback rebuttal letter. In this letter, you will outline an argument for why the initial transaction was legitimate, and that you, the merchant, held up your end of the bargain.
You may also argue that the chargeback is flat-out fraudulent, or may identify issues like confusion that led to an illegitimate chargeback. In these cases, the cardholder may not have intended to defraud you, but they still have no legitimate basis to file a chargeback.
Once the rebuttal letter is submitted, the card-issuing bank will make a decision. Keep in mind that as a merchant, you’ll have to hit many tight deadlines and if you miss them, you will lose the dispute even if there is strong evidence of fraud. So make sure you stay on top of everything, and consider using dispute management tools to keep everything organized.
When Might You Decline to Fight Fraudulent Chargebacks?
There may be some situations when it makes sense to decline to fight a chargeback. For instance, you can sign up for chargeback alert services that will warn you of pending chargebacks. In some cases, you might see a pending chargeback that is likely fraudulent but still decide to resolve the dispute before it becomes a black mark on your record. Unfortunately, to resolve the dispute, you’ll typically have to provide a refund.
If the disputed amount is low enough, fighting the chargeback may simply not be worth the time and effort. Further, every time you’re hit with a chargeback, your chargeback ratio will rise. If the ratio rises high enough, you may face increased fees and penalties. An acquiring bank may also refuse to work with you outright. So sometimes you may want to avoid a dispute over a fraudulent chargeback to protect your chargeback ratio.
Preventing Fraudulent Chargebacks
The best course of action is to avoid as many fraudulent chargebacks as possible. Doing so could save you lost inventory, wasted resources (e.g. labor), and revenue. Disputes with customers can also damage a merchant’s brand, while strong fraud prevention measures could make criminals less likely to target you in the first place.
Using Address Verification Services, requiring two-factor identification (such as 3D Secure), monitoring for suspicious IP addresses, and many other steps can all help prevent fraud in the first place. It’s also wise to use a chargeback and dispute management platform as the tools provided can help with both preventing and combating chargebacks.
Get in touch with our team if you’d like to explore options for preventing, managing, and fighting chargebacks and fraud.