The Green Sheet Online Edition
February 2, 2025 • 25:02:02
A growing threat: The persistent rise of chargebacks
The chargeback crisis for merchants has reached alarming levels. In the United States alone, cardholders on average disputed about six transactions throughout 2023, according to data found in Chargebacks911’s annual Cardholder Dispute Index. This means an astounding $65.21 billion worth of transactions were overturned through chargebacks.
When you factor in Visa’s report that up to 75 percent of all chargebacks are a form of chargeback abuse or misuse—commonly known as “friendly fraud”—and that each dollar lost to friendly fraud costs merchants more than three times the transaction value in fees, fines and lost merchandise, according to LexisNexis, this means that U.S. merchants lost more than $183 billion last year to illegitimate chargebacks.
Adding to the complexity, the Merchant Risk Council issued a critical alert regarding a surge in organized chargeback abuse, meaning that methods to game the chargeback system are becoming widespread and more malicious. With retailers only winning 18 percent of their chargeback representation cases and cardholders facing essentially zero consequences, the problem is approaching uncontrollable levels.
Merchants across all industries are reporting severe financial losses as fraudulent claims grow more sophisticated. After the high-volume shopping and returns activity of the 2024 holiday season, the start of the year often brings an influx of chargebacks, as customers dispute transactions made during peak holiday shopping. This trend threatens to amplify losses for merchants already contending with seasonal pressures.
All in all, navigating the turbulent chargeback landscape demands vigilance and strategic action. This article provides insights on how merchants can mitigate friendly fraud and minimize its impact.
Tackling the chargeback epidemic
The trend of refund policy abuse, first-party misuse and overall chargeback volumes is unsurprising, given the increasing popularity of ecommerce and card-not-present transactions. According to Chargebacks911’s 2024 Chargeback Field Report, 72 percent of surveyed merchants reported an average 18 percent increase in friendly fraud cases.This rise indicates that, while some chargebacks result from genuine errors, a growing number are initiated by malicious consumers and organized fraudsters exploiting weaknesses in the system.
One of the most troubling aspects of this surge is the lack of a clear profile among fraudsters. Evidence suggests systemic operations, often tied to organized crime networks utilizing fraud-as-a-service “ (FaaS) platforms. These groups exploit loopholes across all card types, customer demographics, and merchandise categories.
Furthermore, predicting spikes in chargebacks can prove difficult, but certain periods, such as the Golden Quarter (the fourth quarter of each year, which includes the year-end holiday shopping period) see consistent surges. For example, Adobe Analytics reported that Cyber Monday 2024 hit a record $13.3 billion in sales, surpassing Black Friday. Most holiday shopping occurred online, where chargebacks are more prevalent.
The correlation between increased online shopping and disputed transactions highlights the critical need for proactive fraud prevention, chargeback mitigation and dispute management during these periods.
Protecting your business from organized fraud
The importance of a proactive approach to friendly fraud prevention cannot be overstated. To effectively mitigate friendly fraud, merchants should implement robust authentication measures, such as two-factor authentication (2FA) and tokenization, to verify legitimate transactions. Clear and transparent billing descriptors should be used to reduce confusion that often leads to chargebacks. Additionally, leveraging chargeback alerts and dispute resolution services can help merchants respond quickly to potential fraud cases before they escalate.
Merchants should also ensure that all relevant stakeholders—from customer service to finance—are well-informed and actively participating in fraud prevention efforts. This includes training customer service teams to recognize and resolve disputes before they result in chargebacks, using customer communication tools to confirm purchase intent, and maintaining detailed transaction records to support representment cases. By adopting these strategies, businesses can significantly reduce their exposure to friendly fraud while maintaining a positive customer experience.
Leveraging AI for fraud prevention
Technology plays a pivotal role in helping merchants stay ahead of scammers. Machine learning and artificial intelligence can be used to analyze vast transaction datasets in real-time, detecting unusual patterns and preventing fraudulent chargebacks before they occur. Another essential strategy is implementing chargeback prevention alerts.
These alerts notify merchants of disputes before they are formally filed, allowing time to issue refunds and prevent the chargeback. While this approach may occasionally result in undeserved refunds, it saves significant time and money in the long run.
Staying ahead of the fraudsters
The surge in fraudulent chargebacks serves as a stark reminder that merchants must remain vigilant. Fraudsters are employing increasingly sophisticated tactics, and the financial risks continue to escalate. Protecting your business, your customers and your revenue requires urgent and proactive measures.
The important part here is that there is support to help merchants in overcoming these challenges. Review expert guidelines and update fraud prevention strategies to address these evolving threats. By maintaining vigilance and utilizing advanced tools and technologies, merchants can reduce the impact of friendly fraud and safeguard their operations for the future. 
Monica Eaton is the founder and CEO of Chargebacks911 and Fi911, as well as chief information officer of Global Risk Technologies. A leader in payment fraud prevention, she has helped protect over 10 billion online transactions and recover over $1 billion in chargeback fraud. Fi911’s DisputeLab™ tool streamlines chargeback management for financial institutions. A passionate advocate for diversity in fintech, Eaton has received numerous awards, including Global Leader of the Year at the Women in IT Awards. Contact her at linkedin.com/in/monicaeatoncardone, or learn more at
Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.
Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
