Chargeback fraud - what you need to know for your business

Chargeback fraud has become a big challenge for UK businesses of all sizes and sectors. Merchant Savvy found that 1 in 3 businesses globally are experiencing it.

Our partner Worldpay has made this guide that covers what chargeback fraud is, who’s most at risk and the different types. It outlines strategies that’ll help safeguard your business from chargeback fraud.

What’s a chargeback?

A chargeback is when a customer disputes a transaction with their bank. The bank reverses the payment and returns the funds to the customer.

They protect consumers against fraud, errors, and issues with cancellations or returns. Unfortunately, they also provide a route for fraudulent claims.

What’s chargeback fraud?

It’s a type of payment fraud where customers falsely claim a chargeback to reverse a legitimate transaction. There are several common types:

• Friendly fraud - when a customer claims they didn’t authorise a purchase, even though they did.

• item not received fraud - when a customer claims that the product ordered never arrived, but it was delivered to them.

• Return fraud - when a customer doesn’t return the item they ordered or returns a different item.

• Subscription fraud - when a customer signs up for a subscription service, uses it for a short time, and then disputes the charge as unauthorised.

What’s the impact on businesses?

• Cost

As well as losing the sale, payment providers and banks might charge fees to cover dispute resolution costs.

• Time

Disputing chargebacks means time spent talking with and providing evidence to the bank.

• Reputational damage

A high volume of chargebacks can cause some banks to flag a business as high-risk. This can lead to higher fees or even account suspensions. It can also lead to negative reviews and loss of trust in your brand.

Types of businesses that are most affected

Any business that accepts card payments can be affected. Certain sectors are at higher risk due to the nature or high cost of their services or products.

• Luxury goods retailers – the high price means there’s more to gain from disputing a transaction by claiming items never arrived or were returned after purchase.

• E-commerce businesses - remote, online transactions are more susceptible to friendly fraud and item not received fraud than in-person purchases.

• Subscription-based services - some subscribers dispute charges after using the service. Especially when they forget to cancel after an introductory offer or trial.

• Travel and hospitality - this industry experiences a higher level of cancellations and disputes, as customers sometimes create a chargeback following dissatisfaction with the level of service.

• Food delivery services - quality, accuracy and service disputes can lead to chargebacks for those delivering takeaways to homes.

Strategies to prevent chargeback fraud

• Provide clear product descriptions and pricing information

This will reduce customer confusion and misunderstanding that can lead to chargebacks. Make sure your returns policy is clear for customers.

• Send order tracking and delivery updates

Keep customers informed, so they don’t request a chargeback prematurely.

• Use recorded or tracked delivery

This way you can prove that items have been sent and received. This can help prevent item not received fraud.

• Provide great customer service

A team that responds quickly and proactively will help resolve issues that might otherwise lead to chargebacks.

• Use clear billing descriptors

The words that show up on customer bank statements, should be easily recognisable as you. If a customer sees unfamiliar wording and can’t match it with you, they might claim a chargeback.

• Use a chargeback management system

Worldpay's Dispute Management system sends you real-time notifications, so you can respond quickly.

• Keep accurate records

So you can provide evidence to the bank for any dispute you raise.

• Fraud detection tools

They can analyse your transaction data to detect unusual patterns and block fraudulent activities.

More support

Our partner Worldpay has a suite of tools to help your business with payment processing, protecting you and your customers against fraud.

You could also take a look at our free resources to support your business, and if you register for Santander X we can keep you up to date when new courses, events and programmes go live.