Published by Wanda Rich
Posted on July 30, 2024
6 min readLast updated: January 29, 2026
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Alan Hubbs, General Manager at ChargebackOps
By Alan Hubbs, General Manager at ChargebackOps
It’s no secret that the shift to online has opened many virtual doors for merchandisers. However, in online shopping environments, brands are now faced with growing challenges to balance consumer convenience with fraud prevention and protection. On the one hand, companies want to ensure trust in their brand and mitigate negative customer experiences. On the other hand, navigating advancing threats versus revenue loss caused by friendly fraud is a delicate balance for brands to walk.
Chargebacks are a consumer protection mechanism designed to provide a way for customers to dispute transactions and reclaim their money if they encounter fraudulent, unauthorized, or otherwise problematic charges on their credit or debit cards. While chargebacks were once a financial safety net protecting consumers from genuine fraud, today, they’re becoming a slippery slope that’s transforming ordinary shoppers into unintentional fraudsters.
Friendly fraud, also known as “chargeback fraud,” occurs when a consumer makes an online purchase with their credit card, receives the product or service, but then disputes the charge with their bank to receive a refund while keeping the purchased item. Unlike traditional fraud, where a third party disrupts, intercepts or fakes a transaction, friendly fraud involves the actual cardholder initiating the chargeback on a legitimate purchase. Recent reporting estimates that merchants are expected to pay over $100 billion in chargebacks this year alone and it is suggested that friendly fraud will represent 61% of all chargebacks.
There are many causes for friendly fraud, a lot of which can be unintentional. Consumer misunderstanding, for example, might lead to a chargeback based on a buyer not recognizing a fee or forgetting about the purchase entirely, resulting in a chargeback. Family fraud might occur if a family member has made a purchase on a shared card, generating a dispute when the primary cardholder sees the charge. Subscription confusion may also lead to consumers initiating a chargeback on a recurring charge they didn’t realize they agreed to.
But what happens if the chargeback instances aren’t as accidental?
There is a growing trend in ecommerce of consumer behavior resulting in illegitimate chargebacks, with one survey finding 25% of ecommerce shoppers apply for refunds even though they plan on keeping the product. This shift in customer behavior takes advantage of the security net in place meant to protect actual victims of fraud, with several factors driving this trend forward.
The cost of chargebacks can destroy small businesses, with some reports finding that every $100 in fraudulent orders results in $207 in losses. In addition to revenue loss, including wholesale costs, shipping and fulfillment costs, or chargeback and processing fees, brands also face operational burdens including inventory discrepancies, loss of time and resources to manage disputes, and reputational damage to the brand. This is especially detrimental to small businesses, who don’t realize the cost until it’s too late due to solely focusing on positive consumer experience to build their business.
Unfortunately for merchandisers, chargebacks are costly with long-term, lasting impacts. Fortunately for merchandisers, there are steps they can take to reduce friendly fraud:
The rise of friendly fraud has become a costly problem for brands. Chargebacks, originally meant to protect buyers from fraudulent activity, have paved a convenient way for buyers to create illegitimate refund claims. This shift, driven by consumer misunderstanding, entitlement, and the anonymity of online shopping, has resulted in substantial financial losses and operational burdens for businesses. To combat this trend and ultimately prevent businesses from paying the price, merchants must focus on clear communication, CX features, and fraud detection strategies. By taking proactive steps, brands can better protect themselves from the consequences of friendly fraud and maintain a balanced approach to consumer trust and fraud prevention.
About the Author
Alan Hubbs serves as General Manager for ChargebackOps, a ClearSale Company. Founded in 2015, ChargebackOps provides a comprehensive enterprise chargeback management service with a hands-on, collaborative approach to chargeback analysis that investigates and responds to each chargeback case to match a retailer’s desired handling for fraud. Learn more at chargebackops.com or follow us on Linkedin.
A chargeback is a transaction reversal initiated by a bank, allowing consumers to dispute unauthorized or fraudulent charges on their credit or debit cards.
Friendly fraud occurs when a consumer makes a legitimate purchase but disputes the charge with their bank to receive a refund while keeping the item.
Consumer convenience in banking refers to the ease with which customers can access financial services, make transactions, and manage their accounts, often enhanced by technology.
Chargebacks can lead to significant financial losses for retailers, including lost revenue, shipping costs, and additional fees associated with processing disputes.
Fraud prevention technology includes tools and systems used by businesses to detect and prevent fraudulent activities, such as suspicious transactions or identity theft.
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