How to Avoid Fraudulent Chargebacks

Fraudulent chargebacks are costly for merchants, cutting into their profits and causing them to lose revenue. While they can’t be completely eliminated, implementing security precautions, having clear lines of communication with customers and working closely with banks and payment processors will help businesses avoid unwarranted chargebacks and recover lost funds.

There are three main types of chargeback fraud that merchants should be aware of. The first is unauthorized purchase disputes, which are typically related to online or card-not-present (CNP) transactions. Another common type of chargeback fraud involves customer claims that they never received the products or services that were shipped to them, known as item not received (INR) chargebacks. Finally, a third and potentially most damaging type of chargeback fraud is false fraud, which can be committed by both consumers and criminals.

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False chargeback claims are often motivated by the desire to receive a refund or by the resentment of a credit card company. They also can have a negative impact on consumers, who may be blacklisted by card issuers for filing illegitimate chargebacks or punished with fines and even suspension of their cards.

Ultimately, the key to avoiding false charges is educating consumers on the chargeback process and consequences of engaging in friendly fraud or fraudulent activity. This can help reduce the number of false chargebacks, which in turn reduces costs for card issuers, payment processors and merchants. In addition, it can prevent these claims from being misused by criminals to commit fraud or defraud.

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