{"id":2690,"date":"2020-03-11T16:00:39","date_gmt":"2020-03-11T10:30:39","guid":{"rendered":"https:\/\/rzpwp.blog\/?p=2690"},"modified":"2025-05-26T09:42:31","modified_gmt":"2025-05-26T04:12:31","slug":"chargeback-fraud-ecommerce-business","status":"publish","type":"post","link":"https:\/\/razorpay.com\/blog\/chargeback-fraud-ecommerce-business\/","title":{"rendered":"Chargeback Fraud Setting Back E-commerce Businesses: Is There a Way Out?"},"content":{"rendered":"

Online e-commerce fraud needs no introduction. With the advent of modern technology, seamless payment modes and flexible regulations, processing online purchases is getting easier by the day.<\/span><\/p>\n

However, this also has a dark side. It has become increasingly easier for cunning fraudsters to find loopholes in order to dupe online merchants.\u00a0<\/span><\/p>\n

One such loophole is chargeback fraud, also popularly referred to as friendly fraud<\/a>.<\/span><\/p>\n

Unfortunately for us, there\u2019s nothing friendly about friendly fraud.<\/span><\/i><\/p>\n

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What is chargeback fraud?<\/strong><\/h2>\n

Chargeback 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 the purchased goods or services.\u00a0<\/span><\/p>\n

Once approved, the chargeback cancels the financial transaction, and the consumer receives a refund of the money they spent. And the tricky part? When a chargeback occurs, the merchant is accountable, regardless of whatever measures they took to verify the transaction.<\/span><\/p>\n

What can risk analysts do about chargeback fraud?<\/h2>\n

The primary goal for a risk analyst is to identify the source of a risky online payment and mitigate ways to overcome it.\u00a0<\/span><\/p>\n

In order to do so, the analyst attempts to discover whether the order was placed by the authorized cardholder or a fraudster who\u2019s using the legal cardholder\u2019s information.\u00a0<\/span><\/p>\n

Seems pretty straightforward, right? That\u2019s the case for most scenarios, but not chargeback fraud.<\/span><\/p>\n

For this small subsection, the authorized cardholder and the likely fraudster is the same person. This is known as friendly fraud and is nearly impossible to detect in a cash-driven market like India.\u00a0<\/span><\/p>\n

Let\u2019s now address some of the pain points that Indian business owners face while fighting chargeback fraud and the possible solutions that can be devised for the same.\u00a0<\/span><\/p>\n

What are the types of chargebacks?<\/b><\/h2>\n

Though chargeback fraud is an umbrella of different activities, in order to mitigate it, it’s important to take a step back and evaluate the different disputes that a merchant can face from a chargeback.\u00a0<\/span><\/p>\n

Actual fraud:<\/b><\/h3>\n

This is perhaps the most obvious reason for chargeback and the most common, too. A fraudulent customer used a legitimate cardholder\u2019s information, made a purchase from a merchant and the merchant shipped the order to the fraudster. Upon reviewing their transaction statement, the authorized cardholder identifies a charge as illegitimate due to fraud and files a chargeback, requesting a refund.<\/span><\/p>\n

Merchant error:<\/b><\/h3>\n

In this case, when the customer places an order on the website, the merchant either never ships out the order or ships out an item that was broken or different than described. This causes the frustrated customer to file for a chargeback compensation.<\/span><\/p>\n

Friendly fraud:<\/b><\/h3>\n

A chargeback or friendly fraud is the reversal of payment made through debit\/credit card by the user, which is debited directly from the bank account of the e-commerce seller. Chargeback enables the consumer to get his\/her money back and protects them from fraudulent sellers online.<\/span><\/p>\n

Related Read: <\/b>What is a Payment Reversal & How to Avoid Them?<\/b><\/a><\/p>\n

Under what cases can a consumer file for a chargeback?<\/b><\/h2>\n

There are numerous instances in which chargeback can be availed by the consumers from e-commerce seller. These instances include:\u00a0\u00a0<\/span><\/p>\n