Chargeback fraud is a textbook example of taking advantage of an honor system for selfish gain. Every challenge to an honor system is a vote against it.

There is a whole class of fraud cases referred to as “friendly fraud” as a way to distinguish itself from the unfriendly versions. This misleading name for the fraudulent practices it encompasses comes not from the nature of the fraud itself but because it might not be intentional, and not all of these incidents are intentional. The most common form of friendly fraud is the chargeback, and the version of chargeback important to us is not very friendly at all. There are many reasons why chargeback protection is so important to implement, but we’ve narrowed it down to five.

What is a Chargeback?

A chargeback is just what it sounds like: a cardholder “charges” a bank “back” for a purchase they have already made, usually as a kind of last attempt at a resolution. The customer feels that they did not get the service or item they paid for. The merchant is unwilling or unable to provide a refund, so the customer disputes the charge with their credit card company. This forces the bank to either pay the balance or deny the transaction altogether.

The chargeback process is roughly this 7-step process:

  1. The cardholder disputes the transaction and contacts the bank that issued their credit card (called the issuing bank).
  2. The card’s bank returns the transaction to the merchant’s bank (called the acquiring bank) through the credit card network.
  3. The acquiring bank receives the chargeback and 
    1. resolves the dispute or 
    2. forwards it to the merchant
  4. The merchant receives the chargeback and 
    1. accepts it
    2. submits documentation to the acquiring bank in its defense
  5. The acquiring bank forwards the defense to the credit card network.
  6. The issuing bank receives documentation and releases funds to the cardholder’s account.
  7. The cardholder receives funds and/or information resolving the disputed transaction.

As you can see, there are several ways that fraudsters could take advantage of a system meant to make life easier for consumers. Furthermore, why chargeback protection is so important. These are the five top reasons why:

1. Chargeback Fraud Erodes Trust

We trust our systems to work to our benefit. We trust the companies we use to, at the very least, provide what we pay them for. Chargeback fraud is a textbook example of taking advantage of an honor system for selfish gain. Every challenge to an honor system is a vote against it. We don’t want criminals deciding for us when we can get the level of service we expect. So, by violating the implicit trust of the credit system by defrauding banks, it undermines the entire financial system.

2. It’s Not Easy To Detect

While a credit card user likely notices if a big charge they didn’t make appears on their monthly statement, a lot of little ones might go unnoticed. If you extrapolate that to the wide world of finance and millions of transactions being made every second, it’s easy to see how fraudsters slip by. That’s not even including legitimate chargebacks or innocent accidents. However, machine learning and artificial intelligence offer the greatest good to combat this, watching out for signals that no human could see.

3. Chargebacks Are a Necessary Burden

Although they often feel like more trouble than they’re worth, chargebacks are necessary for maintaining the integrity of the credit system. Chargebacks ultimately protect consumers by allowing customers to get back money they don’t feel they should owe. Consequently, if we want a credit system that runs cleanly and smoothly, we have to accept the risks that come with that trust. 

4. It Can Cost You, the Consumer

One of the additional costs of fraud is that financial companies and card processors are not going to simply eat the costs that come with it. If a bank has to go to impractical or inconvenient ends in order to satisfy a fraudulent request, they will distribute the extra costs across the entire ecosystem. That means all consumers pay extra fees and bigger penalties to offset the losses. Everybody loses.

5. It Can Cost You, The Business

Companies that accept credit cards have to contend with regular chargeback cases in addition to the false ones that come through via fraud. The credit card companies report that most of those are accidental, but that doesn’t make them any less cumbersome. Most companies find it easier and cheaper to simply refund an apparently unhappy customer than deal with the associated costs of fighting a chargeback. That’s why it’s extremely important to use a chargeback fraud prevention system that works.

How Can Merchants Implement Chargeback Protection?

At, our goal is to deliver a seamless customer experience while achieving better chargeback protection for merchants.  We offer machine learning fraud detection solutions instead of traditional rules-based tools that fraudsters can learn to reverse engineer. Our solution has unparalleled results because it leverages multiple data points to paint a complete picture of each transaction and spot the bad actors.

Take a closer look at chargeback fraud protection from