Chargeback fraud , Also Known As friendly fraud , OCCURS When a consumer Makes an online shopping purchase With Their own credit card , And Then requests a chargeback from the issuing bank after-receiving send you purchased the goods or services. Once approved, the chargeback cancels the financial transaction , and the consumer receives a refund of the money they spent. When a chargeback occurs, the merchant is accountable, regardless of whatever steps they take to verify the transaction. [1]


Friendly fraud has been widespread on the Internet, affecting both the sale of physical products and digital transactions. To combat digital transaction fraud, prepaid cards have been offered as an effective alternative to ensure customer payment. South Korean software developers such as Nexon implemented a prepaid system in 2007 to combat fraud, selling prepaid cards in blinds such as Target . [2]

MasterCard was sued in 2003 by an internet vendor for having credit card policies and fees that have made internet vendors vulnerable targets of friendly fraud. Internet vendors typically have to pay a lot of fraudulent transactions. [3]

In recent years, a new variant of friendly fraud, involving bank transfers as opposed to credit card payments, has been documented in Europe. SEPA credit transfers can be recalled within 10 working days of settlement by the bank. [4]


Physical products

The online merchant that sells physical products can not fully protect itself. The only way to have a concrete protection is to take an imprint of the card (and even with card readers), along with photo ID. That signature, in addition to information gathered online, can help in the resolution of chargeback disputes but contractually is no guarantee. “Card absent environment” chargebacks. Also, the merchant can request the card security code . These are the three digit codes on the backs of Visa , MasterCard , and Discover cards, and the four digit code on the front of American Express cards.

Digital transactions

Friendly fraud thrives in fraudsters to succeed. Common targets include pornography and gambling websites. [5] Attempts by the merchant to prove that the consumer has the goods or services are difficult. Again, the use of card security codes can show that the cardholder (or, in the case of the three-digit security codes written on the backs of US credit cards, The code) was present, citation needed ] but even the entry of a security code was not made, Specially for online or via-phone purchases where shipping occurs after finalization of the contract. Proof of delivery is often difficult, and when it can not be provided, the cardholder gets the product without paying for it.

One method of combating a fraud is to create a product in the merchant’s database. If you have any questions, please feel free to contact us. This tactic will also work for digital subscription services or any other online product that requires updates or logins. The merchant will usually charge a fee for incurring a chargeback, so this is not a complete solution.

Call center transactions

Another common channel for chargebacks is mail ordering (MOTO) payment processing through a call center . In this case, as with the two others listed here, this is a card not present transaction . To help eliminate call center purchase chargebacks, call centers are working to make purchases more like “card present” purchases.

When purchasing products, they will typically swipe their credit cards, confirm the purchase amount, and enter a secret code (or sign their name) and leave with the merchandise. This is a “card is present” purchase and fraudulent chargebacks in these situations are almost non-existent.

Agent-assisted automation technology for call centers est disponible That Allows customers to enter Their credit card information, Including the card security code Directly into the customer relationship management software without the officer ever seeing or hearing it. The agent remains on the phone, so there is no awkward transfer to an interactive voice response system. All the agent can hear is monotones. This is the “card present” equivalent of “swiping” the card.

Before the purchase is Submitted by the agent, the purchase amount is played back to the consumer along with the last four digits of the card. The consumer is required to confirm their purchase by providing a verbal signature, which is recorded.

Finally, an email is sent to the consumer with the purchase information and an attached audio file of their verbal signature.

Cost to Merchants

A 2016 study by LexisNexis stated that chargeback fraud costs merchants $ 2.40 for every $ 1 lost. This is because of product-loss, fine banking, penalties and administrative costs. [6]


  1. Jump up^ Poole, Riley (January 5, 2008). “Understanding Friendly Fraud”. Merchant Talk.
  2. Jump up^ Sheffield, Brandon (September 7, 2007). “Nexon’s Min Kim On The Power Of Microtransactions” . Gamasutra.
  3. Jump up^ Bayot, Jennifer (May 13, 2003). “Company Sues MasterCard Over Fees for Online Sales” . New York Times .
  4. Jump up^ Yang, Maximilian (September 1, 2016). “Card Payments and Consumer Protection in Germany” (PDF) . Anglo-German Law Journal .
  5. Jump up^ Ritchtell, Matt; John Schwartz (November 18, 2002). “Credit Cards Seek New Fees on Web Demimonde” . New York Times .
  6. Jump up^ “2016 LexisNexis® True Cost of Fraud 7 SM Study” (PDF) . LexisNexis . Retrieved 2016-05-01 .