How to Fight Fraud Chargebacks

Amidst all the joys of running a business, nothing can take the wind out of your sails and leave you discouraged quite like a case of fraud. You’ve done everything right for your customer, and yet, they hit you with a chargeback saying you never delivered their items or they never purchased the item in the first place.

Maybe they’re telling the truth and someone and their order was stolen or their credit card information has been compromised. Or, maybe they’re just a malicious person looking to take advantage of you and your company. 

Either way, now is not the time to let your emotions get the best of you - a fast, calculated response can make all the difference in addressing fraud-related chargebacks. That’s why we’ve put together this detailed guide on how to fight fraud chargebacks head-on.

From your initial email to the customer to creating a compelling representment package, handling pre-arbitration, and even preventing chargeback fraud in the first place, we’ll cover everything you need to know.

But the frustration of these disputes can be put in the past for good when you partner with the #1 chargeback company in the industry, Disputifer. 

Our solution can prevent up to 95% of chargebacks in the first place, and anytime one slips through the crack, it works on your behalf to win disputes at a rate as high as 70%. Protect your bottom line by getting set up with Disputifier today!

Overview of Fraud-Related Chargebacks

It’s important that you understand the different types of fraud-related chargebacks and the impact each has on your business before we get into actually fighting these disputes. Let’s start with the basics.

These types of chargebacks are disputes initiated by customers claiming that a transaction was unauthorized or fraudulent. They’re the most common reason a dispute occurs, and they can fall into one of two categories: friendly fraud or true fraud.

Friendly Fraud vs True Fraud

Friendly fraud occurs when a customer disputes a legitimate transaction, often out of forgetfulness, misunderstanding, or an attempt to get something for free. 

For instance, a customer might claim they did not receive a product when they actually did, or they might dispute a subscription renewal charge they forgot about. 

It can be either unintentional or deliberate, but either way, the legitimate cardholder did in fact make the purchase and is now disputing it. This type is far more difficult to prevent as the customer is the cardholder.

On the other hand, true fraud occurs when a transaction is made using stolen card information. This type of fraud involves criminals obtaining card details through various means, such as phishing, data breaches, or card skimming.

The real cardholder is unaware of the transaction until they check their bank statements and see a purchase they know for a fact they did not authorize themselves. Fortunately, this type is very easy to prevent - you can set up security measures to catch up to 95% of these.

Impact on Merchants

Regardless of the type of chargeback fraud you’re dealing with, it can take a serious toll on your bottom line along with your reputation as a merchant. So, what happens if you lose a chargeback

  • Revenue Loss: Merchants lose the transaction amount when a chargeback is issued. You may also lose the goods or services provided if you’ve already fulfilled them.
  • Chargeback Fees: Payment processors often impose fees for each chargeback, which can add up quickly and affect the bottom line.
  • Increased Costs: High chargeback ratios can lead to increased transaction fees and may require additional resources to manage and prevent future disputes.
  • Time and Resources: Handling chargebacks can be a time suck as you need to gather evidence, respond to claims, and manage disputes. This diverts attention from core business operations.
  • Customer Trust: Frequent fraud-related chargebacks can erode trust between merchants and their customers. Customers may lose confidence in your ability to secure their transactions.
  • Bank Relationships: High chargeback ratios strain relationships with acquiring banks and payment processors, leading to higher fees, more stringent processing requirements, or even the termination of merchant accounts.

Don’t worry - we have tips on how to win a chargeback as a merchant and how to prevent chargebacks as a merchant in the first place to avoid all these consequences. But before we get into how to fight fraud chargebacks, is there ever a scenario in which you should take the loss and move on?

What Should I Do?

We know you want to fight fraud chargebacks anytime they occur, but in some cases, you should simply refund the customer and move on. This is usually the case with true fraud, in which you captured funds from stolen credit card information.

A bank will typically side with the customer in these cases as the onus is on the merchant to confirm any transaction is legitimate and authorized.

In contrast, friendly fraud is where you have the opportunity to show that the customer is either:

  1. Mistaken 
  2. Acting fraudulently

So, let’s get into how to fight friendly fraud chargebacks so you can attempt to recover lost revenue and avoid impact to your chargeback ratio.

How to Fight Fraud Chargebacks

Whether this is your first at-bat with fraud-related chargebacks or you’ve found yourself consistently losing these and you’re looking for guidance to turn the tide in your favor, here’s how to fight fraud chargebacks effectively.

Gathering and Presenting Evidence

The moment you’re hit with a chargeback you need to compile all relevant evidence to make your case that you’ve done everything by the book. This includes:

  • Detailed Receipts: Detailed transaction receipts that include the date, time, amount, and description of the goods or services provided. These must match the order and payment details.
  • Proof of Delivery: Use trackable shipping methods and obtain delivery confirmations (signatures), especially for high-value items. This provides concrete evidence that the customer received their order.
  • Customer Communication Logs: Maintain records of all communications with the customer, including emails, chat logs, and phone call records. This demonstrates your efforts to resolve any issues and verify the legitimacy of the transaction.

There may be other types of evidence worth providing as well for specific scenarios. For example, if you run a SAAS company you could upload digital usage records showing your customer’s use of the service, login times, and activity.

You may even consider showing digital evidence like IP addresses, device IDs, and geolocation data that can link the transaction to the cardholder. We have a great chargeback response template if you’re looking for guidance here.

Crafting a Strong Representment Package

A compelling representment can make or break your success rate. Start by clearly explaining why the transaction was legitimate. Use simple language and be concise, avoiding emotional phrasing.

Structure your rebuttal logically, addressing each point of the chargeback claim with corresponding evidence. This makes it easier for the reviewer to follow your argument.

Make sure that every piece of evidence directly addresses the chargeback reason. For instance, a chargeback for services not rendered could be linked to screenshots of work you completed for a client. 

You may be wondering, how long does a merchant have to respond to a chargeback? It will vary from financial institution to financial institution, which is why you need to pay close attention to deadlines and give yourself time to fulfill all requirements in advance. We have a guide on what happens if merchant does not respond to dispute, but the short answer is - you’ll lose!

Navigating Pre-arbitration

After you’ve submitted your initial representment you’ll either find that the bank sides with you or the customer. If they believe your case, great! The work is done (unless the customer themselves initiates pre-arbitration). 

But if they side with the customer, the next step is to go through pre-arbitration. This is another opportunity to put forward any evidence or arguments supporting your position. So, if any new information has come to light (additional interactions with the customer, activity logs, updated shipping information, etc.), be sure to include it.

Now What?

Be patient as you await the verdict from the payment processor - once it comes, you’ll be at a crossroads yet again. If you win pre-arbitration, excellent - your hard work has paid off and the funds will be returned to your account.

However, if things come out in favor of the customer, you’ll have the choice to either take the loss, learn from it, and move on - OR, go through with the arbitration process.

This involves additional fees and a more formal process, but it is your last chance to overturn the chargeback. So, you’ll need to think about whether or not it makes sense to go forward. If you lose, you’ll be on the hook for all legal fees not just on your end but also on the customer’s end.

But if you’re worried about an impact on your chargeback ratio, or are dealing with really high-value goods and can’t take the loss, it’s worth this last-ditch effort to steer the decision in your favor.

Preventing Fraud Chargebacks in the First Place

Knowing how to fight fraud chargebacks is great. But because it’s so difficult to fight true-fraud chargebacks as a merchant, it’s imperative that you set up prevention strategies to catch fraudulent orders and refund them before fulfillment. There are so many different ways you can do this.

Implementing Fraud Prevention Measures

It’s worth setting up AI-powered fraud detection tools that analyze transaction patterns and identify anomalies in real-time. These can detect unusual activity, such as multiple transactions from the same IP address or transactions from high-risk regions, flagging them for review.

You can implement address verification services (AVS) to compare the billing address provided by the customer with the address on file with the card issuer. This helps verify the legitimacy of the transaction.

While you’re at it, you should require that customers provide the CVV code (card verification value) for any transaction, as this extra layer of security means the customer must have the credit card in their hand to make the purchase.

Another option is to use multi-factor authentication for high-risk transactions, which involves sending a code to the cardholder’s mobile device or email. Then, they need to enter that code to complete the transaction.

Finally, set up secure payment gateways that use encryption and tokenization to protect sensitive payment information. This makes it harder for fraudsters to steal and use card data.

Customer Communication

Communicating with customers is another great way to avoid many cases of chargeback fraud. Send detailed order confirmation emails that outline what the customer purchased, the amount charged, and when they can expect delivery. This reduces confusion and helps customers recognize legitimate transactions on their statements.

You should also clearly outline your return and refund policies on your website so that customers know how to return items or seek refunds, preventing simple misunderstandings from turning into disputes.

If you offer subscription services, make sure customers understand the terms, billing cycles, and how to cancel. Send reminders before auto-renewals to prevent unwanted charges.

Put Fraud-Related Chargebacks in the Past for Good With Disuptifier!

What if we told you that you could stop stressing about not just fraud-related chargebacks, but all types of chargebacks once and for all? With the right solution in place you can automatically prevent and fight disputes without lifting a finger. That’s where Disputifier comes in.

Our AI-powered software is trusted by thousands of leading e-commerce companies because it saves time and money while preventing up to 95% of disputes in the first place. It has fraud-prevention features, order-not-received mitigation tools, and chargeback alerts from the leading providers to do everything for you.

In the rare event that a chargeback does slip through the cracks, the system will prepare a compelling representment and fight the dispute on your behalf. Because we fight thousands of these a month, we know what works and are constantly improving our strategies. This means you’ll enjoy unparalleled win rates.

So, how often do merchants win chargeback disputes? The industry average ranges from just 10-20%. But with Disputifier, you can boost this as high as 70%! 

Plus, you only pay when we win a dispute for you. So what do you have to lose? Get set up with our system today and put the problem of fraud-related chargebacks behind you for good.

Final Thoughts on How to Fight Fraud Chargebacks

There you have it - how to fight fraud chargebacks. Effectively fighting fraud chargebacks involves a combination of proactive prevention measures, gathering and presenting robust evidence, and understanding the chargeback process. 

We hope you’re able to use these insights to feel more confident fighting fraud-related chargebacks. But remember - you don’t need to work harder, you can work smarter with AI-powered solutions that manage your chargeback processes on your behalf. This way, you can focus your attention on more relevant matters related to core business activities.

Find more tips on managing chargebacks in our blog, including merchant chargeback insurance, chargeback vs dispute, ethoca alerts, and what is a compliance chargeback

Otherwise, it’s time you got set up with one of the best chargeback companies in the industry - Disputifier. Secure your business with our comprehensive chargeback management solutions to start protecting your revenue and enjoying peace of mind today!

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