Repeat Chargeback Offenders: What Should Merchants Do?

Sydney VaccaroChargebacksLeave a Comment

Repeat Chargeback Offenders_ What Should Merchants Do_
Chargeback fraudsters are not being tracked by 44% of issuing banks. That means that merchants need to stay proactive by tracking fraudulent behavior.

The dispute process was initially put into place to protect cardholders from fraudsters and dishonest merchants. Unfortunately, some cardholders try to take advantage of the chargeback process for monetary gain. If merchants and issuers do not track and block the repeat offenders of chargeback fraud, merchants will suffer losses from fraud and increased dispute rates.

What is Chargeback Fraud?

Chargeback fraud is the intentional misuse of the dispute process in an attempt to regain the transaction amount, while still retaining the product or service. There are many reasons why a customer may commit chargeback fraud, ranging from buyer's remorse to not wanting to pay the amount due. On the other hand, friendly fraud involves no malicious intent from the cardholder when they dispute a charge. Friendly fraud can stem from simple forgetfulness, an unclear merchant descriptor, or even family members making unknown purchases. We will get into why this is an important distinction later.

Repeat Chargeback Fraud Offenders

A recent Javelin study of the long- and short- term effect of disputes on merchants found that a lack of reporting is exposing merchants and issuing banks to more fraud. "Nearly a quarter of financial institutions report that they do not track the number of transactions disputed by each account holder, leaving them vulnerable to [chargeback] fraud perpetrated by individuals seeking to game the system. Among issuers who do not track serial disputers, the most prevalent rationale is that they do not wish to inconvenience customers with the follow-up tracking that the process entails; 44% of issuers who do not track customer chargeback frequency cite this as their reason for not doing so." This creates a golden opportunity for chargeback fraudsters.

There are different levels of malicious intent. For example, the fraudster may dispute a purchase one time because they have buyer's remorse and try to rationalize the dispute in their mind. But if they win the dispute, they may realize that they can do this again at the same merchant or others. A more malicious chargeback fraud attempt is when a cardholder makes a purchase with the sole intention of disputing the charge and keeping the merchandise.

For example, flip fraud is when cardholders buy an item with the intention of disputing the charge to get their money back. Then, they turn around and attempt to sell the disputed merchandise to make a profit. They are stealing the product from the merchant, then keeping the money from selling the product on a platform like eBay or Craigslist. Not every product or company suffers from flip fraud, but if your products can be sold easily on platforms like eBay or Craigslist, you may be vulnerable.

Without merchants or issuing banks tracking the number of disputes coming from a cardholder, a chargeback fraudster could dispute many charges hoping to find a merchant that doesn’t have a good dispute response process.

When Should You Ban Customers?

A customer should be banned if you are certain they committed chargeback fraud. These customers are stealing products from you and are trying to take advantage of the chargeback system. On the other hand, customers shouldn't be banned if they are a friendly fraudster or have true fraud on their credit card. True fraud occurs when a cardholder's information is used by a fraudster to make unauthorized purchases. Customers who submit friendly fraud or true fraud chargebacks do not have malicious intentions and do not deserve to be banned from purchasing at your store or site. They are simply mistaken or are a victim of fraud.


Chargeback fraudsters are not being tracked by 44% of issuing banks. That means that merchants need to stay proactive by tracking fraudulent behavior, blocking cardholders to prevent repeat offenders, and responding to disputes to regain revenue.

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