Finance & Economics

How to prevent chargeback fraud

Isabella Goode



Chargebacks happen when a customer requires a bank to halt or reverse a transaction for a variety of reasons. They may not have received the products you shipped, or they may have received the wrong product and thus want their money back. These are legitimate chargeback concerns that can be addressed through better customer service.

However, there are fraudulent chargebacks where someone steals a credit card and uses it to purchase items. Once the real owner of the card notices, they issue a chargeback. The business is left with a loss because they might have shipped a large quantity of products and not been paid for it.

So, how can businesses prevent this second type of chargeback?


How to prevent chargeback fraud. Source:

Implement Credit Card, Bank, and Address Verification Systems

Credit card, bank, and address verification should work hand-in-hand and, when used right, they can help minimize the number of chargebacks the business receives. This system works by weeding out fraudulent or incorrect addresses that cannot exist and do not exist in any system. If the address exists, these systems check that the credit card is tied to that address and if it is not, then the charge will not go through.

Online account verification checks to ensure that the bank account that issued the credit card is valid and that all details line up. It can also be used to verify your account so you can check that you have received funds from a customer before shipping a product.

Lastly, online account verification can be used to only connect verified accounts to the source of funds. The good news is that online account verification solutions like those developed by Envestnet | Yodlee have cut the time it takes to do the verification from a few weeks to almost instantaneously. This is why they are great for all digital businesses that receive payments. Envestnet | Yodlee also develops various other fintech solutions to help businesses make better use of the data they have to help them grow.

Make Things Clear

The two areas you should be focusing on here are product descriptions and returns. First, all your product descriptions should be accurate so that customers know what to expect. This way, you have something to use to fight a chargeback. Second, you should make your return policy as clear as possible. Let your customers know how to return items and ask for a refund.

Keep an Eye on Volume Orders

If you sell one or two products to each customer, you should be very suspicious if a customer suddenly wants a hundred of the same product. Additionally, you should keep an eye on customers who make many purchases in succession and who have different billing and shipping addresses.

Anyone who ticks all three of these boxes is a reseller who is using a stolen credit card or identity to make these purchases without any regard to the business and account owner.

Have Proper Documentation

Businesses should have records of all interactions with a customer. This will give you something to fight with in the case you are hit with a fraudulent chargeback.

Fraudulent chargebacks are on the rise as digital commerce keeps growing. Businesses should all be aware of this type of fraud so they can stop it before it costs them a lot of money.


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