Definition

Chargeback fraud occurs when a cardholder disputes a transaction with their bank, claiming it was unauthorized or that goods were not received, even though the transaction was legitimate. The merchant loses both the revenue and the product, and is additionally charged a chargeback fee by their acquirer.

Friendly Fraud vs. True Chargeback Fraud

True fraud: A criminal uses stolen card details to make a purchase. The genuine cardholder disputes it. This is a legitimate chargeback – the merchant bears the loss unless 3D Secure was used and liability has shifted.

Friendly fraud (also: first-party fraud): The legitimate cardholder makes a purchase, receives the goods or service, and then disputes the transaction anyway – claiming non-delivery, unrecognized charge, or similar. This is chargeback fraud. It is one of the fastest-growing forms of payment fraud and is particularly difficult to detect because the transaction itself was genuine.

How Merchants Detect and Prevent Chargeback Fraud

• Device fingerprinting and behavioral signals: High-risk patterns (new device, new IP, address mismatch) can flag potential friendly fraud before the transaction is approved

• Order velocity and account history: Repeat customers with strong payment history are significantly less likely to engage in friendly fraud

• Delivery confirmation and transaction evidence: Comprehensive logging of delivery, IP, device, and authentication data strengthens chargeback dispute responses

• 3D Secure: Liability shifts to the issuing bank when 3DS authentication is completed – the merchant is protected from chargebacks on those transactions

→ Deep Dive: Chargeback Fraud – How to Detect, Prevent and Dispute Friendly Fraud

→ See also: Fraud Prevention · Chargeback Rate · Liability Shift